Early brain development requires a tight orchestration between neural tube patterning and growth. How pattern formation and brain growth are coordinated is incompletely understood. Previously we showed that aristaless-related homeobox (ARX), a paired-like transcription factor, regulates cortical progenitor pool expansion by repressing an inhibitor of cell cycle progression. Here we show that ARX participates in establishing dorsoventral identity in the mouse forebrain. In Arx mutant mice, ventral genes, including Olig2, are ectopically expressed dorsally. Furthermore, Gli1 is upregulated, suggesting an ectopic activation of SHH signaling. We show that the ectopic Olig2 expression can be repressed by blocking SHH signaling, implicating a role for SHH signaling in Olig2 induction. We further demonstrate that the ectopic Olig2 accounts for the reduced Pax6 and Tbr2 expression, both dorsal specific genes essential for cortical progenitor cell proliferation. These data suggest a link between the control of dorsoventral identity of progenitor cells and the control of their proliferation. In summary, our data demonstrate that ARX functions in a gene regulatory network integrating normal forebrain patterning and growth, providing important insight into how mutations in ARX can disrupt multiple aspects of brain development and thus generate a wide spectrum of neurodevelopmental phenotypes observed in human patients.