The structure and projection patterns of adult mesodiencephalic dopaminergic (DA) neurons are one of the best characterized systems in the vertebrate brain. However, the early organization and development of these nuclei remain poorly understood. The induction of midbrain DA neurons requires sonic hedgehog (Shh) from the floor plate and fibroblast growth factor 8 (FGF8) from the isthmic organizer, but the way in which FGF8 regulates DA neuron development is unclear. We show that, during early embryogenesis, mesodiencephalic neurons consist of two distinct populations: a diencephalic domain, which is probably independent of isthmic FGFs; and a midbrain domain, which is dependent on FGFs. Within these domains, DA progenitors and precursors use partly different genetic programs. Furthermore, the diencephalic DA domain forms a distinct cell population, which also contains non-DA Pou4f1+ cells. FGF signaling operates in proliferative midbrain DA progenitors, but is absent in postmitotic DA precursors. The loss of FGFR1/2-mediated signaling results in a maturation failure of the midbrain DA neurons and altered patterning of the midbrain floor. In FGFR mutants, the DA domain adopts characteristics that are typical for embryonic diencephalon, including the presence of Pou4f1+ cells among TH+ cells, and downregulation of genes typical of midbrain DA precursors. Finally, analyses of chimeric embryos indicate that FGF signaling regulates the development of the ventral midbrain cell autonomously.