Embryonal carcinoma (EC) cells are pluripotent stem cells extensively used for studies of cell differentiation. Although retinoic acid (RA) is a powerful inducer of neurogenesis in EC cells, it is not clear what specific neuronal subtypes are generated and whether different RAR isotypes may contribute to such neuronal diversification. Here we show that RA treatment during EC embryoid body formation is a highly robust protocol for generation of striatal-like GABAergic neurons which display molecular characteristics of striatopallidal medium spiny neurons (MSNs), including expression of functional dopamine D2 receptor. By using RARα, β and γ selective agonists we show that RARγ is the functionally dominant RAR in mediating RA control of early molecular determinants of MSNs leading to formation of striatopallidal-like neurons. In contrast, activation of RARα is less efficient in generation of this class of neurons, but is essential for differentiation of functional dopaminergic neurons, which may correspond to a subpopulation of inhibitory dopaminergic neurons expressing glutamic acid decarboxylase in vivo.