Significance Basal ganglia circuits are engaged in controlling psychomotor function. The circuits consist of striatonigral and striatopallidal pathways. The opposing but balanced activity of these two neural pathways is important for regulating movement-related functions. How the cell types of striatonigral and striatopallidal neurons are specified to construct these two pathways during development remains elusive. We found that the LIM homeodomain transcription factor Islet-1 (Isl1) was specifically expressed in striatonigral neurons during development. Genetic inactivation of Isl1 resulted in increased apoptosis, abnormal differentiation, and aberrant axonal projections of striatonigral neurons. These findings suggest that Isl1 plays a key role in specification of striatonigral neurons. Our study provides insights into genetic mechanisms by which basal ganglia circuits are built to function.