The ability to differentiate embryonic stem cells (ESCs) into specific cell types is critical for improved regenerative medicine strategies, cancer chemotherapeutic approaches, and regimens to combat chronic diseases associated with aging. Subclasses of motor neurons (MNs) are generated at different positions along the rostrocaudal axis of the spinal cord, and the signals that specify MN subtype fates remain poorly defined. We show here that the cytochrome P450 enzyme Cyp26a1, which metabolizes all-trans-retinoic acid (RA) and thereby reduces RA levels, plays a crucial role in specifying MN columnar subtypes. Lack of Cyp26a1 in ESCs during differentiation to spinal MNs increases Aldh1a2 (RALDH2) and Hoxc6, markers of the Hox-dependent, lateral motor column (LMC) subtype identity. In contrast, Lhx3, a marker for median motor column identity, showed lower expression in Cyp26a1(-/-)-derived MNs compared with WT. Without Cyp26a1, an increase in intracellular RA concentration plus sonic hedgehog agonist treatment confer an LMC fate on differentiating MNs. Our data suggest a strategy for increasing LMC-type MNs from ESCs by blocking Cyp26a1 in cell replacement/ESC differentiation therapy to treat neurodegenerative diseases, such as amyotrophic lateral sclerosis.