The differentiation of floor plate cells and motor neurons can be induced by Sonic hedgehog (SHH), a secreted signaling protein that undergoes autoproteolytic cleavage to generate amino- and carboxy-terminal products. We have found that both floor plate cells and motor neurons are induced by the amino-terminal cleavage product of SHH (SHH-N). The threshold concentration of SHH-N required for motor neuron induction is about 5-fold lower than that required for floor plate induction. Higher concentrations of SHH-N can induce floor plate cells at the expense of motor neuron differentiation. Our results suggest that the induction of floor plate cells and motor neurons by the notochord in vivo is mediated by exposure of neural plate cells to different concentrations of the amino-terminal product of SHH autoproteolytic cleavage.