Mouse embryoid bodies (EBs) differentiate into dorsal spinal cord neural progenitors in response to retinoic acid (RA). Our data demonstrate that the addition of Sonic Hedgehog (Shh) directs towards a ventral spinal cord neural tube fate, but only at extremely high concentrations. One possible explanation is the presence of dorsal directing factors. Bone morphogenetic proteins (BMPs), known to direct dorsal spinal cord neural differentiation, were expressed in RA-treated EBs. Shh more potently directed ventral differentiation when combined with the BMP inhibitor Noggin. Further, when BMP7 was added, the ability of Shh to direct ventral differentiation was further mitigated.