Here we show that Smad3, a transforming growth factor beta (TGFbeta)/activin signaling effector, is expressed in discrete progenitor domains along the dorsoventral axis of the developing chick spinal cord. Restriction of Smad3 expression to the dP6-p2 and p3 domains together with exclusion from the motoneuron progenitor domain, are the result of the activity of key transcription factors responsible for patterning the neural tube. Smad3-mediated TGFbeta activity promotes cell-cycle exit and neurogenesis by inhibiting the expression of Id proteins, and activating the expression of neurogenic factors and the cyclin-dependent-kinase-inhibitor p27(kip1). Furthermore, Smad3 activity induces differentiation of selected neuronal subtypes at the expense of other subtypes. Within the intermediate and ventral domains, Smad3 promotes differentiation of ventral interneurons at the expense of motoneuron generation. Consequently, the absence of Smad3 expression from the motoneuron progenitor domain during pattern formation of the neural tube is a prerequisite for the correct generation of spinal motoneurons.