During embryogenesis, the pallial-subpallial boundary (PSB) divides the two main progenitor domains in the telencephalon: the pallium, the major source of excitatory neurons, and the subpallium, the major source of inhibitory neurons. The PSB is formed at the molecular interface between the pallial (high Pax6+) and subpallial (high Gsx2+) ventricular zone (VZ) compartments. Initially, the PSB contains cells that express both Pax6 and Gsx2, but during later stages of development this boundary is largely refined into two separate compartments. In this study we examined the developmental mechanisms underlying PSB boundary formation and the postnatal consequences of conditional loss of Pax6 function at the PSB on neuronal fate in the amygdala and olfactory bulb, two targets of PSB-derived migratory populations. Our cell fate and time-lapse imaging analyses reveal that the sorting of Pax6+ and Gsx2+ progenitors during embryogenesis is the result of a combination of changes in gene expression and cell movements. Interestingly, we find that in addition to giving rise to inhibitory neurons in the amygdala and olfactory bulb, Gsx2+ progenitors generate a subpopulation of amygdala excitatory neurons. Consistent with this finding, targeted conditional ablation of Pax6 in Gsx2+ progenitors results in discrete local embryonic patterning defects that are linked to changes in the generation of subsets of postnatal excitatory and inhibitory neurons in the amygdala and inhibitory neurons in the olfactory bulb. Thus, in PSB progenitors, Pax6 plays an important role in the generation of multiple subtypes of neurons that contribute to the amygdala and olfactory bulb.