Thalamocortical axons (TCAs) pass through the prethalamus in the first step of their neural circuit formation. Although it has been supposed that the prethalamus is an intermediate target for thalamocortical projection formation, much less is known about the molecular mechanisms of this targeting. Here, we demonstrated the functional implications of the prethalamus in the formation of this neural circuit. We show that Olig2 transcription factor, which is expressed in the ventricular zone (VZ) of prosomere 3, regulates prethalamus formation, and loss of Olig2 results in reduced prethalamus size in early development, which is accompanied by expansion of the thalamic eminence (TE). Extension of TCAs is disorganized in the Olig2-KO dorsal thalamus, and initial elongation of TCAs is retarded in the Olig2-KO forebrain. Microarray analysis demonstrated upregulation of several axon guidance molecules, including Epha3 and Epha5, in the Olig2-KO basal forebrain. In situ hybridization showed that the prethalamus in the wild type excluded the expression of Epha3 and Epha5, whereas loss of Olig2 resulted in reduction of this Ephas-negative area and the corresponding expansion of the Ephas-positive TE. Dissociated cultures of thalamic progenitor cells demonstrated that substrate-bound EphA3 suppresses neurite extension from dorsal thalamic neurons. These results indicate that Olig2 is involved in correct formation of the prethalamus, which leads to exclusion of the EphA3-expressing region and is crucial for proper TCA formation. Our observation is the first report showing the molecular mechanisms underlying how the prethalamus acts on initial thalamocortical projection formation.