During development of the neural tube, inhibition of the Notch response as well as the activation of the Sonic Hedgehog (Shh) response results in the formation of neuronal cell types. To determine whether Shh and Notch act independently, we tested the effects of the Notch inhibitor DAPT (N‐[N‐(3,5‐difluorophenacetyl)‐l‐alanyl]‐S‐phenylglycine t‐butyl ester) on neuralized, embryonic stem (ES) cell‐derived embryoid bodies (EBs), while varying the levels of Shh pathway activation. Shh‐resistant EBs were derived from Smo null ES cells, while EBs with constitutive high level of Shh pathway activation were derived from Ptc1 null ES cells. Intermediate levels of Shh pathway activation was achieved by the addition of ShhN to the EB culture medium. It was found that DAPT‐mediated inhibition of the Notch response resulted in enhanced neuronal differentiation. In the absence of Shh, more interneurons were detected, while the main effect of DAPT on EBs with an activated Shh response was the precocious loss of ventral neuronal precursor‐specific markers. Developmental Dynamics 236:886–892, 2007. © 2007 Wiley‐Liss, Inc.