Carbamylated erythropoietin (CEPO), a well characterized erythropoietin (EPO) derivative, does not bind to the classical EPO receptor and does not stimulate erythropoiesis. Using neural progenitor cells derived from the subventricular zone of the adult mouse, we investigated the effect of CEPO on neurogenesis and the associated signaling pathways in vitro. We found that CEPO significantly increased neural progenitor cell proliferation and promoted neural progenitor cell differentiation into neurons, which was associated with up-regulation of Sonic hedgehog (Shh), its receptor ptc, and mammalian achaete-scute homolog 1 (Mash1), a pro-neuron basic helix-loop-helix protein transcription factor. Blockage of the Shh signaling pathway with a pharmacological inhibitor, cyclopamine, abolished the CEPO-induced neurogenesis. Attenuation of endogenous Mash1 expression by short-interfering RNA blocked CEPO-promoted neuronal differentiation. In addition, recombinant mouse Shh up-regulated Mash1 expression in neural progenitor cells. These results demonstrate that the Shh signaling pathway mediates CEPO-enhanced neurogenesis and Mash1 is a downstream target of the Shh signaling pathway that regulates CEPO-enhanced neuronal differentiation.