Specification of the progenitors’ regional identity is a pivotal step during development of the cerebral cortex and basal ganglia. The molecular mechanisms underlying progenitor regionalization, however, are poorly understood. Here we showed that the transcription factor Vax1 was highly expressed in the developing subpallium. In its absence, the RNA-Seq analysis, in situ RNA hybridization, and immunofluorescence staining results showed that the cell proliferation was increased in the subpallium, but the neuronal differentiation was blocked. Moreover, the dLGE expands ventrally, and the vLGE, MGE, and septum get smaller. Finally, overexpressed VAX1 in the LGE progenitors strongly inhibits Gsx2 expression. Taken together, our findings show that Vax1 is crucial for subpallium regionalization by repressing Gsx2.