Regulating the choice between neural stem cell maintenance versus differentiation determines growth and size of the developing brain. Here we identify TGF-beta signaling as a crucial factor controlling these processes. At early developmental stages, TGF-beta signal activity is localized close to the ventricular surface of the neuroepithelium. In the midbrain, but not in the forebrain, Tgfbr2 ablation results in ectopic expression of Wnt1/beta-catenin and FGF8, activation of Wnt target genes, and increased proliferation and horizontal expansion of neuroepithelial cells due to shortened cell-cycle length and decreased cell-cycle exit. Consistent with this phenotype, self-renewal of mutant neuroepithelial stem cells is enhanced in the presence of FGF and requires Wnt signaling. Moreover, TGF-beta signal activation counteracts Wnt-induced proliferation of midbrain neuroepithelial cells. Thus, TGF-beta signaling controls the size of a specific brain area, the dorsal midbrain, by antagonizing canonical Wnt signaling and negatively regulating self-renewal of neuroepithelial stem cells.