Dorsal neural tube-derived retinoic acid promotes the end of neural crest production and transition into a definitive roof plate. Here, we analyze how this impacts the segregation of central and peripheral lineages, a process essential for tissue patterning and function. Localized in ovo inhibition in quail embryos of retinoic acid activity followed by single-cell transcriptomics unraveled a comprehensive list of differentially expressed genes relevant to these processes. Importantly, progenitors co-expressed neural crest, roof plate and dI1 interneuron markers, indicating a failure in proper lineage segregation. Furthermore, separation between roof plate and dI1 interneurons is mediated by Notch activity downstream of retinoic acid, highlighting their crucial role in establishing the roof plate–dI1 boundary. Within the peripheral branch, where absence of retinoic acid resulted in neural crest production and emigration extending into the roof plate stage, sensory progenitors failed to separate from melanocytes, leading to formation of a common glia-melanocyte cell with aberrant migratory patterns. In summary, the implementation of single-cell RNA sequencing facilitated the discovery and characterization of a molecular mechanism responsible for the segregation of dorsal neural fates during development.