Neuronal diversification is a fundamental step in the construction of functional neural circuits, yet how neurons generated from single progenitor domains acquire diverse subtype identities remains poorly understood. Here, we developed a stem cell-based system to model subtype diversification of V1 interneurons, a class of spinal neurons comprising four clades, each containing dozens of molecularly distinct neuronal subtypes. We demonstrate that V1 subtype diversity is not hard-wired and can be modified by extrinsic signals. Inhibition of Notch and activation of retinoid signaling results in a switch to MafA clade identity and enriches differentiation of Renshaw cells, a specialized MafA subtype that mediates recurrent inhibition of spinal motor neurons. We show that in vitro-generated Renshaw cells migrate into appropriate spinal laminae upon transplantation and form subtype-specific synapses with motor neurons. Our results demonstrate that stem cell-derived neuronal subtypes can be used to investigate mechanisms underlying neuronal subtype specification and circuit assembly. Overall design: Total RNA profiles during differentiation of mouse ES cell-derived V1 and dI4 spinal interneurons by deep sequencing