The mammalian aryl hydrocarbon receptor (AHR) is a ligand-activated transcription factor that mediates the toxic effects of dioxins and related compounds. Dioxins have been shown to cause a range of neurological defects, but the role of AHR during normal neuronal development is not known. Here we investigate the developmental functions of ahr-1, the Caenorhabditis elegans aryl hydrocarbon receptor homolog. We show that ahr-1:GFP is expressed in a subset of neurons, and we demonstrate that animals lacking ahr-1 function have specific defects in neuronal differentiation, as evidenced by changes in gene expression, aberrant cell migration, axon branching, or supernumerary neuronal processes. In ahr-1-deficient animals, the touch receptor neuron AVM and its sister cell, the interneuron SDQR, exhibit cell and axonal migration defects. We show that dorsal migration of SDQR is mediated by UNC-6/Netrin, SAX-3/Robo, and UNC-129/TGFbeta, and this process requires the functions of both ahr-1 and its transcription factor dimerization partner aha-1. We also document a role for ahr-1 during the differentiation of the neurons that contact the pseudocoelomic fluid. In ahr-1-deficient animals, these neurons are born but they do not express the cell-type-specific markers gcy-32:GFP and npr-1:GFP at appropriate levels. Additionally, we show that ahr-1 expression is regulated by the UNC-86 transcription factor. We propose that the AHR-1 transcriptional complex acts in combination with other intrinsic and extracellular factors to direct the differentiation of distinct neuronal subtypes. These data, when considered with the neurotoxic effects of AHR-activating pollutants, support the hypothesis that AHR has an evolutionarily conserved role in neuronal development.