Activation of Notch1 signaling in neural progenitor cells (NPCs) induces self-renewal and inhibits neurogenesis. Upon neuronal differentiation, NPCs overcome this inhibition, express proneural genes to induce Notch ligands, and activate Notch1 in neighboring NPCs. The molecular mechanism that coordinates Notch1 inactivation with initiation of neurogenesis remains elusive. Here, we provide evidence that Prox1, a transcription repressor and downstream target of proneural genes, counteracts Notch1 signaling via direct suppression of Notch1 gene expression. By expression studies in the developing spinal cord of chick and mouse embryo, we showed that Prox1 is limited to neuronal precursors residing between the Notch1+ NPCs and post-mitotic neurons. Physiological levels of Prox1 in this tissue are sufficient to allow binding at Notch1 promoter and they are critical for proper Notch1 transcriptional regulation in vivo. Gain-of-function studies in the chick neural tube and mouse NPCs suggest that Prox1-mediated suppression of Notch1 relieves its inhibition on neurogenesis and allows NPCs to exit the cell cycle and differentiate. Moreover, loss-of-function in the chick neural tube shows that Prox1 is necessary for suppression of Notch1 outside the ventricular zone, inhibition of active Notch signaling, down-regulation of NPC markers, and completion of neuronal differentiation program. Together these data suggest that Prox1 inhibits Notch1 gene expression to control the balance between NPC self-renewal and neuronal differentiation. Early during development, neural progenitor cells (NPCs) can either proliferate or differentiate into neurons. Thus, generation of the correct number of neurons is governed by a tightly regulated balance between proliferation and differentiation, and disruption of this balance can result in severe developmental deficits, malformations, or cancers. Notch1 is a member of the Notch family of receptors, which make up a highly conserved cell signaling system. Notch1 signaling has been shown to inhibit NPC differentiation and to promote self-renewal, thereby allowing NPCs to divide and progressively generate the enormous number of neurons present in the central nervous system. The molecular mechanism by which NPCs overcome Notch1-mediated inhibition in order to differentiate into neurons, however, is not completely understood. In this study, we show that Prox1, a homeobox transcriptional repressor, plays a fundamental role in the switch to differentiation by suppressing the expression of Notch1 receptor, thereby preventing newly produced neuronal precursors from receiving inhibitory signals from Notch ligands present in neighboring cells. This transcriptional repression may regulate cell cycle exit and differentiation of NPCs as they migrate towards different regions and adopt their final cell fates. We suggest that Prox1 may exert its known influence on embryonic development, organ morphogenesis, and cancer through its ability to counteract Notch1 signaling.