Mammalian pallial (cortical and hippocampal) and striatal interneurons are both generated in the embryonic subpallium, including the medial ganglionic eminence (MGE). Herein we demonstrate that the Zfhx1b (Sip1, Zeb2) zinc finger homeobox gene is required in the MGE, directly downstream of Dlx1&2, to generate cortical interneurons that express Cxcr7, MafB, and cMaf. In its absence, Nkx2-1 expression is not repressed, and cells that ordinarily would become cortical interneurons appear to transform toward a subtype of GABAergic striatal interneurons. These results show that Zfhx1b is required to generate cortical interneurons, and suggest a mechanism for the epilepsy observed in humans with Zfhx1b mutations (Mowat-Wilson syndrome).