Mesodiencephalic dopaminergic neurons control voluntary movement and reward based behaviours. Their dysfunction can lead to neurological disorders, including Parkinson's disease. These neurons are thought to arise from progenitors in the floor plate of the caudal diencephalon and midbrain. Members of the Foxa family of forkhead/winged helix transcription factor, Foxa1 and Foxa2, have previously been shown to regulate neuronal specification and differentiation of mesodiencephalic progenitors. However, Foxa1 and Foxa2 are also expressed earlier during regional specification of the rostral brain. In this paper, we have examined the early function of Foxa1 and Foxa2 using conditional mutant mice. Our studies show that Foxa1 and Foxa2 positively regulate Lmx1a and Lmx1b expression and inhibit Nkx2.2 expression in mesodiencephalic dopaminergic progenitors. Subsequently, Foxa1 and Foxa2 function cooperatively with Lmx1a and Lmx1b to regulate differentiation of mesodiencephalic dopaminergic neurons. Chromatin immunoprecipitation experiments indicate that Nkx2.2 and TH genes are likely direct targets of Foxa1 and Foxa2 in mesodiencephalic dopaminergic cells in vivo. Foxa1 and Foxa2 also inhibit GABAergic neuron differentiation by repressing the Helt gene in the ventral midbrain. Our data therefore provide new insights into the specification and differentiation of mesodiencephalic dopaminergic neurons and identifies Foxa1 and Foxa2 as essential regulators in these processes.