The specification of distinct neuronal cell-types is controlled by inducing signals whose interpretation in distinct areas along the central nervous system provides neuronal progenitors with a precise and typical expression code of transcription factors. To gain insights into this process, we investigated the role of Otx2 in the specification of identity and fate of neuronal progenitors in the ventral midbrain. To achieve this, Otx2 was inactivated by Cre recombinase under the transcriptional control of En1. Lack of Otx2 in the ventrolateral and posterior midbrain results in a dorsal expansion of Shh expression and in a dorsal and anterior rotation of the midbrain-hindbrain boundary and Fgf8 expression. Indeed, in this mutant correct positioning of the ventral site of midbrain-hindbrain boundary and Fgf8 expression are efficiently controlled by Otx1 function, thus allowing the study of the identity and fate of neuronal progenitors of the ventral midbrain in the absence of Otx2. Our results suggest that Otx2 acts in two ways: by repressing Nkx2.2 in the ventral midbrain and maintaining the Nkx6.1-expressing domain through dorsal antagonism on Shh. Failure of this control affects the identity code and fate of midbrain progenitors, which exhibit features in common with neuronal precursors of the rostral hindbrain even though the midbrain retains its regional identity and these neuronal precursors are rostral to Fgf8 expression. Dopaminergic neurons are greatly reduced in number, red nucleus precursors disappear from the ventral midbrain where a relevant number of serotonergic neurons are generated. These results indicate that Otx2 is an essential regulator of the identity, extent and fate of neuronal progenitor domains in the ventral midbrain and provide novel insights into the mechanisms by which neuronal diversity is generated in the central nervous system.