Tegmental nuclei in the ventral midbrain and anterior hindbrain control motivated behavior, mood, memory, and movement. These nuclei contain inhibitory GABAergic and excitatory glutamatergic neurons, whose molecular diversity and development remain largely unraveled. Many tegmental neurons originate in the embryonic ventral rhombomere 1 (r1), where GABAergic fate is regulated by the transcription factor (TF) Tal1. We used single-cell mRNA sequencing of the mouse ventral r1 to characterize the Tal1-dependent and independent neuronal precursors. We describe gene expression dynamics during bifurcation of the GABAergic and glutamatergic lineages and show how active Notch signaling promotes GABAergic fate selection in post-mitotic precursors. We identify GABAergic precursor subtypes that give rise to distinct tegmental nuclei and demonstrate that Sox14 and Zfpm2, two TFs downstream of Tal1, are necessary for the differentiation of specific tegmental GABAergic neurons. Our results provide a framework for understanding the development of cellular diversity in the tegmental nuclei.