Sonic hedgehog (Shh), an organizing signal from ventral midline structures, is essential for the induction and maintenance of many ventral cell types in the embryonic neural tube. Olig1 and Olig2 are related basic helix-loop-helix factors induced by Shh in the ventral neural tube. Although expression analyses and gain-of-function experiments suggested that these factors were involved in motoneuron and oligodendrocyte development, they do not clearly define the functional differences between Olig1 and Olig2. We generated mice with a homozygous inactivation of Olig2. These mice did not feed and died on the day of birth. In the spinal cord of the mutant mice, motoneurons are largely eliminated and oligodendrocytes are not produced. Olig2(-/-) neuroepithelial cells in the ventral spinal cord failed to differentiate into motoneurons or oligodendrocytes and expressed an astrocyte marker, S100beta, at the time of oligodendrogenesis. Olig1 or Olig3, other family members, were expressed in the descendent cells that should have expressed Olig2. We concluded that Olig2 is an essential transcriptional regulator in motoneuron and oligodendrocyte development. Our data provide the first evidence that a single gene mutation leads to the loss of two cell types, motoneuron and oligodendrocyte.