We showed previously that the orphan nuclear receptorTlxis required for the correct establishment of the pallio-subpallial boundary. Loss ofTlxresults in a dorsal expansion of ventral markers (e.g., the homeodomain protein GSH2) into the ventralmost pallial region, i.e., the ventral pallium. We also observed a disproportionate reduction in the size of theTlxmutant lateral ganglionic eminence (LGE) from embryonic day 14.5 onward. Here we show that this reduction is caused, at least in large part, by a proliferation defect. Interestingly, inTlxmutants, the LGE derivatives are differentially affected. Although the development of theTlxmutant striatum is compromised, an apparently normal number of olfactory bulb interneurons are observed. Consistent with this observation, we found thatTlxis required for the normal establishment of the ventral LGE that gives rise to striatal projection neurons. This domain is reduced by the dorsal and ventral expansion of molecular markers normally confined to progenitor domains flanking the ventral LGE. Finally, we investigated possible genetic interactions betweenGsh2andTlxin lateral telencephalic development. Our results show that, althoughGsh2andTlxhave additive effects on striatal development, they differentially regulate the establishment of ventral pallial identity.