The vertebrate spinal cord consists of a large number of different cell types in close proximity to one another. The identities of these cells appear to be specified largely by information acquired from their local environments. We report here that local cell-cell interactions, mediated by zebrafish homologues of the Drosophila melanogaster neurogenic gene, Delta, regulate specification of diverse neuronal types in the ventral spinal cord. We describe identification of a novel zebrafish Delta gene expressed specifically in the nervous system and show, by expressing a dominant negative form of Delta protein in embryos, that Delta proteins mediate lateral inhibition in the zebrafish spinal cord. Furthermore, we find that Delta function is important for specification of a variety of spinal cord neurons, suggesting that lateral inhibition serves to diversify neuronal fate during development of the vertebrate spinal cord.