The evolutionarily conserved Hox family of homeodomain transcription factors plays fundamental roles in regulating cell specification along the anterior posterior axis during development of all bilaterian animals by controlling cell fate choices in a highly localized, extracellular signal and cell context dependent manner. Some studies have established downstream target genes in specific systems but their identification is insufficient to explain either the ability of Hox genes to direct homeotic transformations or the breadth of their patterning potential. To begin delineating Hox gene function in neural development we used a mouse ES cell based system that combines efficient neural differentiation with inducible Hoxb1 expression. Gene expression profiling suggested that Hoxb1 acted as both activator and repressor in the short term but predominantly as a repressor in the long run. Activated and repressed genes segregated in distinct processes suggesting that, in the context examined, Hoxb1 blocked differentiation while activating genes related to early developmental processes, wnt and cell surface receptor linked signal transduction and cell-to-cell communication. To further elucidate aspects of Hoxb1 function we used loss and gain of function approaches in the mouse and chick embryos. We show that Hoxb1 acts as an activator to establish the full expression domain of CRABPI and II in rhombomere 4 and as a repressor to restrict expression of Lhx5 and Lhx9. Thus the Hoxb1 patterning activity includes the regulation of the cellular response to retinoic acid and the delay of the expression of genes that commit cells to neural differentiation. The results of this study show that ES neural differentiation and inducible Hox gene expression can be used as a sensitive model system to systematically identify Hox novel target genes, delineate their interactions with signaling pathways in dictating cell fate and define the extent of functional overlap among different Hox genes.