Early brain development is regulated by the coordinated actions of multiple signaling centers at key boundaries between compartments. Three telencephalic midline structures are in a position to play such roles in forebrain patterning: The cortical hem, the septum, and the thalamic eminence at the diencephalic-telencephalic boundary. These structures express unique complements of signaling molecules, and they also produce distinct populations of Cajal-Retzius cells, which are thought to act as "mobile patterning units," migrating tangentially to cover the telencephalic surface. We show that these 3 structures require the transcription factor Lhx2 to delimit their extent. In the absence of Lhx2 function, all 3 structures are greatly expanded, and the Cajal-Retzius cell population is dramatically increased. We propose that the hem, septum, and thalamic eminence together form a "forebrain hem system" that defines and regulates the formation of the telencephalic midline. Disruptions in the forebrain hem system may be implicated in severe brain malformations such as holoprosencephaly. Lhx2 functions as a central regulator of this system's development. Since all components of the forebrain hem system have been identified across several vertebrate species, the mechanisms that regulate them may have played a fundamental role in driving key aspects of forebrain evolution.