In the developing spinal cord, oligodendrocyte progenitors (OLPs) originate from the ventral neuroepithelium and the specification of this lineage depends on the inductive activity of Sonic hedgehog (Shh) produced by ventral midline cells. On the other hand, it has been shown that OLP identity is acquired by the coexpression of the transcription factors olig2 and nkx2.2. Although initially expressed in adjacent nonoverlapping domains of the ventral neuroepithelium, these transcription factors become coexpressed in the pMN domain at the time of OLP specification through dorsal extension of the Nkx2.2 domain. Here we show that Shh is sufficient to promote the coexpression of Olig2 and Nkx2.2 in neuroepithelial cells. In addition, Shh activity is necessary for this coexpression since blocking Shh signalling totally abolishes Olig2 expression and impedes dorsal extension of Nkx2.2. Although Shh at these stages affects neuroepithelial cell proliferation, the dorsal extension of the Nkx2.2 domain is not due to progenitor proliferation but to repatterning of the ventral neuroepithelium. Finally, Shh not only stimulates OLP specification but also simultaneously restricts the ventral extension of the astrocyte progenitor (AP) domain and reduces astrocyte development. We propose that specification of distinct glial lineages is the result of a choice that depends on Shh signalling.