The neural circuits that control motor activities depend on the spatially and temporally ordered generation of distinct classes of spinal interneurons. Despite the importance of these interneurons, the mechanisms underlying their genesis are poorly understood. Here, we demonstrate that the Olig-related transcription factor Bhlhb5 (recently renamed Bhlhe22) plays two central roles in this process. Our findings suggest that Bhlhb5 repressor activity acts downstream of retinoid signaling and homeodomain proteins to promote the formation of dI6, V1 and V2 interneuron progenitors and their differentiated progeny. In addition, Bhlhb5 is required to organize the spatially restricted expression of the Notch ligands and Fringe proteins that both elicit the formation of the interneuron populations that arise adjacent to Bhlhb5(+) cells and influence the global pattern of neuronal differentiation. Through these actions, Bhlhb5 helps transform the spatial information established by morphogen signaling into local cell-cell interactions associated with Notch signaling that control the progression of neurogenesis and extend neuronal diversity within the developing spinal cord.