Many cerebral cortical neurons and glia are produced by apical progenitors dividing at the ventricular surface of the embryonic dorsal telencephalon. Other neurons are produced by basal progenitor cells, which are derived from apical progenitors, dividing away from the ventricular surface. The transcription factor Pax6 is expressed in apical progenitors and is down regulated in basal progenitors, which upregulate the transcription factor Tbr2. Here we show that Pax6-/- cells are under-represented in the cortex of Pax6+/+'Pax6-/- chimeras early in corticogenesis, indicating that Pax6 is required for the production of normal numbers of cortical cells. We provide evidence that this underproduction is attributable to an early depletion of the progenitor pool caused by greater than normal proportions of newly divided cells exiting the cell cycle. We show that most progenitor cells dividing away from the ventricular surface in Pax6-/- embryos fail to express the transcription factor Tbr2 and that Pax6 is required cell autonomously for Tbr2 expression in the developing cortex of Pax6+/+'Pax6-/- chimeras. Transcription factors normally expressed ventrally in the telencephalic ganglionic eminences (Mash1, Dlx2 and Gsh2) are upregulated cell autonomously in mutant cells in the developing cortex of Pax6+/+'Pax6-/- chimeras; Nkx2.1, which is expressed only in the medial ganglionic eminence, is not. These data indicate that early functions of Pax6 in developing cortical cells are to repress expression of transcription factors normally found in the lateral ganglionic eminence, to prevent precocious differentiation and depletion of the progenitor pool, and to induce normal development of cortical basal progenitor cells.