L3/Lhx8 is a member of the LIM-homeobox gene family. Previously, we demonstrated that L3/Lhx8-null mice specifically lacked cholinergic neurons in the basal forebrain. In the present study, we conditionally suppressed L3/Lhx8 function during retinoic acid-induced neural differentiation of a murine embryonic stem (ES) cell line using an L3/Lhx8-targeted small interfering RNA (siRNA) produced by an H1. 2 promoter-driven vector. Our culture conditions induced efficient differentiation of the ES cells into neurons and astrocytes, but far less efficient differentiation into oligodendrocytes. Suppression of L3/Lhx8 expression by siRNA led to a dramatic decrease in the number of cells positive for the cholinergic marker ChAT, and overexpression of L3/Lhx8 recovered this effect. However, no significant changes were observed in the number of Tuj1+ neurons and GABA+ cells. These results strongly suggest that L3/Lhx8 is a key factor in the cholinergic differentiation of murine ES cells and is involved in basal forebrain development.