Coordination of voluntary motor activity depends on the generation of the appropriate neuronal subtypes in the basal ganglia and their integration into functional neuronal circuits. The largest nucleus of the basal ganglia, the striatum, contains two classes of neurons: the principal population of medium-sized dense spiny neurons (MSNs; 97-98% of all striatal neurons in rodents), which project to the globus pallidus and the substantia nigra, and the locally projecting striatal interneurons (SINs; 2-3% in rodents). SINs are further subdivided into two non-overlapping groups: those producing acetylcholine (cholinergic) and those producing γ-amino butyric acid(GABAergic). Despite the pivotal role of SINs in integrating the output of striatal circuits and the function of neuronal networks in the ventral forebrain, the lineage relationship of SIN subtypes and the molecular mechanisms that control their differentiation are currently unclear. Using genetic fate mapping, we demonstrate here that the majority of cholinergic and GABAergic SINs are derived from common precursors generated in the medial ganglionic eminence during embryogenesis. These precursors express the LIM homeodomain protein Lhx6 and have characteristics of proto-GABAergic neurons. By combining gene expression analysis with loss-of-function and misexpression experiments, we provide evidence that the differentiation of the common precursor into mature SIN subtypes is regulated by the combinatorial activity of the LIM homeodomain proteins Lhx6, Lhx7 (Lhx8) and Isl1. These studies suggest that a LIM homeodomain transcriptional code confers cell-fate specification and neurotransmitter identity in neuronal subpopulations of the ventral forebrain.