The specification of the intricate neuronal assemblies that characterize the forebrain is not well understood. The ventral spinal cord is specified through a concentration gradient of Sonic hedgehog (Shh) protein secreted by the notochord. Shh is expressed also in the forebrain neuroepithelium (neural Shh) and the underlying notochord and prechordal plate. Neural Shh is essential for the development of the prethalamus (ventral thalamus), but its effects on the thalamus (dorsal thalamus) are still unclear. We hypothesized that neural Shh would act on a previously regionalized dorsal diencephalic region to promote the emergence of specific thalamic nuclear and histological traits. To find out, we generated a conditional mouse mutant line specifically lacking Shh expression in the diencephalic neuroepithelium. We show that the transcription factor Gbx2, required for thalamic development downstream Shh, is expressed in our mutant in a restricted thalamic region and is necessary and sufficient for the differentiation of the medial and intralaminar thalamic nuclei. In the rest of the thalamus, neural Shh is required to promote neuronal aggregation into nuclei as well as axonal extension. In this way, the individual thalamic nuclei show differential dependence on Shh, Gbx2, or both for their differentiation. Additionally, Gbx2 is required for the survival of thalamic neurons.