The specification of spinal interneuron and motor neuron identities initiates within progenitor cells, while motor neuron subtype diversification is regulated by hierarchical transcriptional programs implemented postmitotically. Here we find that mice lacking GDE2, a six-transmembrane protein that triggers motor neuron generation, exhibit selective losses of distinct motor neuron subtypes, specifically in defined subsets of limb-innervating motor pools that correlate with the loss of force-generating alpha motor neurons. Mechanistically, GDE2 is expressed by postmitotic motor neurons but utilizes extracellular glycerophosphodiester phosphodiesterase activity to induce motor neuron generation by inhibiting Notch signaling in neighboring motor neuron progenitors. Thus, neuronal GDE2 controls motor neuron subtype diversity through a non-cell-autonomous feedback mechanism that directly regulates progenitor cell differentiation, implying that subtype specification initiates within motor neuron progenitor populations prior to their differentiation into postmitotic motor neurons.