Understanding the control of cell-fate choices during embryonic stem cell (ESC) differentiation is crucial for harnessing strategies for efficient production of desired cell types for pharmaceutical drug screening and cell transplantation. Here we report the identification of the zinc finger-like doublesex and mab-3-related transcription factor 5 (Dmrt5) as a marker for mammalian ventral-medial mesencephalic neuroepithelium that give rise to dopamine neurons. Gain- and loss-of-function studies in ESC demonstrate that Dmrt5 is critically involved in the specification of ventral-medial neural progenitor cell fate and the subsequent generation of dopamine neurons expressing essential midbrain characteristics. Genome-wide analysis of Dmrt5-mediated transcriptome changes and expression profiling of ventral-medial and ventral-lateral mesencephalic neuroepithelium revealed suppressive and inductive regulatory roles for Dmrt5 in the transcription program associated with the ventral-medial neural progenitor fates. Together, these data identify Dmrt5 as an important player in ventral mesencephalic neural fate specification.