Glutamatergic and GABAergic neurons mediate much of the excitatory and inhibitory neurotransmission, respectively, in the vertebrate nervous system. The process by which developing neurons select between these two cell fates is poorly understood. Here we show that the homeobox genes Tlx3 and Tlx1 determine excitatory over inhibitory cell fates in the mouse dorsal spinal cord. First, we found that Tlx3 was required for specification of, and expressed in, glutamatergic neurons. Both generic and region-specific glutamatergic markers, including VGLUT2 and the AMPA receptor Gria2, were absent in Tlx mutant dorsal horn. Second, spinal GABAergic markers were derepressed in Tlx mutants, including Pax2 that is necessary for GABAergic differentiation, Gad1/2 and Viaat that regulate GABA synthesis and transport, and the kainate receptors Grik2/3. Third, ectopic expression of Tlx3 was sufficient to suppress GABAergic differentiation and induce formation of glutamatergic neurons. Finally, excess GABA-mediated inhibition caused dysfunction of central respiratory circuits in Tlx3 mutant mice.