During development of the ventral spinal cord, the V2 interneurons emerge from p2 progenitors and diversify into two major subtypes, V2a and V2b, that play key roles in locomotor coordination. Dll4-mediated Notch activation in a subset of p2 precursors constitutes the crucial first step towards generating neuronal diversity in this domain. The mechanism behind the asymmetric Notch activation and downstream signaling events are, however, unknown at present. We show here that the Ascl1 and Neurog basic helix-loop-helix (bHLH) proneural factors are expressed in a mosaic pattern in p2 progenitors and that Foxn4 is required for setting and maintaining this expression mosaic. By binding directly to a conserved Dll4 enhancer, Foxn4 and Ascl1 activate Dll4 expression, whereas Neurog proteins prevent this effect, thereby resulting in asymmetric activation of Dll4 expression in V2 precursors expressing different combinations of proneural and Foxn4 transcription factors. Lineage tracing using the Cre-LoxP system reveals selective expression of Dll4 in V2a precursors, whereas Dll4 expression is initially excluded from V2b precursors. We provide evidence that BMP/TGFβ signaling is activated in V2b precursors and that Dll4-mediated Notch signaling is responsible for this activation. Using a gain-of-function approach and by inhibiting BMP/TGFβ signal transduction with pathway antagonists and RNAi knockdown, we further demonstrate that BMP/TGFβ signaling is both necessary and sufficient for V2b fate specification. Our data together thus suggest that the mosaic expression of Foxn4 and proneural factors may serve as the trigger to initiate asymmetric Dll4-Notch and subsequent BMP/TGFβ signaling events required for neuronal diversity in the V2 domain.