Although the role of transcription factors in fate specification of cortical interneurons is well established, how these interact with extracellular signals to regulate interneuron development is poorly understood. Here we show that the activin receptor ALK4 is a key regulator of the specification of somatostatin interneurons. Mice lacking ALK4 in GABAergic neurons of the medial ganglionic eminence (MGE) showed marked deficits in distinct subpopulations of somatostatin interneurons from early postnatal stages of cortical development. Specific losses were observed among distinct subtypes of somatostatin+/Reelin+ double-positive cells, including Hpse+ layer IV cells targeting parvalbumin+ interneurons, leading to quantitative alterations in the inhibitory circuitry of this layer. Activin-mediated ALK4 signaling in MGE cells induced interaction of Smad2 with SATB1, a transcription factor critical for somatostatin interneuron development, and promoted SATB1 nuclear translocation and repositioning within the somatostatin gene promoter. These results indicate that intrinsic transcriptional programs interact with extracellular signals present in the environment of MGE cells to regulate cortical interneuron specification.