Stromal cell-derived factor ␣ (SDF1␣) and its cognate receptor CXCR4 play an important role in neuronal development in the hippocampus, but the genes directly regulated by SDF1␣/ CXCR4 signaling are unknown. To study the role of CXCR4 targeted genes in neuronal development, we used neuronal cultures established from embryonic day 18 rats. Hippocampal neurons express CXCR4 receptor proteins and are stimulated by SDF1␣ resulting in activation of extracellular signal-regulated kinase (ERK)1/2 and the transcription factor cAMPresponse element-binding protein. SDF1␣ rapidly induces the expression of the early growth response gene Egr1, a transcription factor involved in activity-dependent neuronal responses, in a concentration-dependent manner. Gel-shift analysis showed that SDF1␣ enhances DNA binding activity to the Egr1-containing promoter for GAD67. Chromatin immunoprecipitation analysis using an Egr1 antibody indicated that SDF1␣ stimulation increases binding of Egr1 to a GAD67 promoter DNA sequence. SDF1␣ stimulation increases the expression of GAD67 at both the mRNA and protein levels, and increases the amount and neurite localization of ␥-aminobutyric acid (GABA) in neurons already expressing GABA. SDF1␣-induced Egr1/GAD67 expression is mediated by the G protein-coupled CXCR4 receptor and activation of the ERK pathway. Reduction of Egr1 gene expression using small interfering RNA technology lowers the level of GAD67 transcripts and inhibits SDF1␣-induced GABA production. Inhibition of CXCR4 activation in the developing mouse brain in utero greatly reduced Egr1 and GAD67 mRNA levels and GAD67 protein levels, suggesting a pivotal role for CXCR4 signaling in the development of GABAergic neurons in vivo. Our data suggest that SDF1␣/CXCR4/G protein/ERK signaling induces the expression of the GAD67 system via Egr1 activation, a mechanism that may promote the maturation of GABAergic neurons during development.