CDO is a cell surface immunoglobulin superfamily member that positively regulates myogenic differentiation in vitro and in vivo and signals to posttranslationally activate myogenic basic helix-loop-helix (bHLH) transcription factors. The Cdo gene is also expressed in the dorsal aspect and midline structures of the developing central nervous system, and mice lacking CDO on the C57BL/6 background display holoprosencephaly with approximately 80% penetrance, resulting in perinatal lethality. We report here that a fraction of Cdo-/- mice from this background have additional defects in brain development, including hydrocephalus and cortical thinning. Primary neural progenitor cultures from E14.5 Cdo-/- mutants display reduced proliferation, which may underlie the thinning. The cortical preplate and cortices of mutant animals also show reduced staining for beta-tubulin III, indicating defective neuronal differentiation. CDO levels are strongly increased in cultured C17.2 neuronal precursor cells stimulated to differentiate; modulation of CDO levels in these cells by overexpression or interfering RNA approaches enhances or diminishes differentiation, respectively. Cotransfection of CDO enhances the activity of the neurogenic bHLH factor, neurogenin1, in reporter assays and enhances heterodimerization of neurogenin1 and E47. These results indicate that CDO promotes neuronal differentiation and support the hypothesis that CDO coordinates differentiation of multiple cell lineages by regulating the activity of tissue-specific bHLH factors.