GABAergic neuronal cell grafting has promise for treating a multitude of neurological disorders including epilepsy, age-related memory dysfunction, Alzheimer’s disease and schizophrenia. However, identification of an unlimited source of GABAergic cells is critical for advancing such therapies. Our previous study implied that reprogramming of bone marrow-derived mesenchymal stem cells (BMSCs) through overexpression of the Achaete-scute homolog 1 (Ascl1, also called Mash1) could generate GABAergic neuron-like cells. Here, we investigated mechanisms underlying the conversion of BMSCs into GABAergic cells. We inhibited γ-secretase (an enzyme that activates Notch signaling) with N-[N-(3,5-difluorophenacetyl)-L-alanyl]-S-phenylglycine t-butyl ester (DAPT) or manipulated the expression of Notch signaling components such as the recombination signal binding protein for immunoglobulin kappa J region (RBPJ), hairy and enhancer of split-1 (Hes1) or Mash1. We demonstrate that inhibition of γ-secretase through DAPT down-regulates RBPJ and Hes1, up-regulates Mash1 and results in an enhanced differentiation of BMSCs into GABAergic cells. On the other hand, RBPJ knockdown in BMSCs has no effect on Mash1 gene expression whereas Hes1 knockdown increases the expression of Mash1. Transduction of Mash1 in BMSCs also increases the expression of Hes1 but not RBPJ. Moreover, increased GABAergic differentiation in BMSCs occurs with concurrent Mash1 overexpression and Hes1-silencing. Thus, the Mash1-dependent Notch signaling pathway regulates GABAergic neuron-like differentiation of BMSCs. These results also suggest that genetic engineering of BMSCs is a useful avenue for obtaining GABAergic neuron-like donor cells for the treatment of neurological disorders.