Three cell types differentiate in the early frog neural plate: neural crest at the lateral edges, floorplate at the midline and primary neurons in three bilateral stripes. Floorplate cells and ventral neurons are induced by Sonic hedgehog (Shh) and neural crest and dorsal neurons are induced by epidermal factors such as bone morphogenetic proteins (BMPs). Neurogenesis in a subset of cells within the stripes involves lateral inhibition. However, the process by which pools of precursors are defined in stereotypic domains in response to inductive signals is unknown. Here we show that frog Zic2 encodes a zinc-finger transcription factor of the Gli superfamily which is expressed in stripes that alternate with those in which primary neurons differentiate and overlap the domains of floorplate and neural crest progenitors. Zic2 inhibits neurogenesis and induces neural crest differentiation. Conversely, Gli proteins are widely expressed, induce neurogenesis and inhibit neural crest differentiation. Zic2 is therefore a vertebrate pre-pattern gene, encoding anti-neurogenic and crest-inducing functions that counteract the neurogenic but not the floorplate-inducing activity of Gli proteins. We propose that the combined function of Gli/Zic genes responds to inductive signals and induces patterned neural cell differentiation.