Embryonic development of the mammalian forebrain is guided by signals from four patterning centers. The concerted actions of these signals transform the anterior neural plate and prosencephalon into discrete forebrain structures including the telencephalon (cerebral cortex and basal ganglia) and hypothalamus. In this review, we describe the signaling, transcriptional, and regulatory events that lead to induction of the prospective telencephalon, and that instruct regional development of distinct telencephalic areas along the rostrocaudal and dorsoventral axes.