Targeted deletion of the bHLH DNA-binding protein Hand2 in the neural crest, impacts development of the enteric nervous system (ENS), possibly by regulating the transition from neural precursor cell to neuron. We tested this hypothesis by targeting Hand2 deletion in nestin-expressing neural precursor (NEP) cells. The mutant mice showed abnormal ENS development, resulting in lethal neurogenic pseudo-obstruction. Neurogenesis of neurons derived from NEP cells identified a second nestin non-expressing neural precursor (NNEP) cell in the ENS. There was substantial compensation for the loss of neurons derived from the NEP pool by the NNEP pool but this was insufficient to abrogate the negative impact of Hand2 deletion. Hand2-mediated regulation of proliferation affected both neural precursor and neuron numbers. Differentiation of glial cells derived from the NEP cells was significantly decreased with no compensation from the NNEP pool of cells. Our data indicate differential developmental potential of NEPs and NNEPs; NNEPs preferentially differentiate as neurons, whereas NEPs give rise to both neurons and glial cells. Deletion of Hand2 also resulted in complete loss of NOS and VIP and a significant decrease in expression of choline acetyltransferase and calretinin, demonstrating a role for Hand2 in neurotransmitter specification and/or expression. Loss of Hand2 resulted in a marked disruption of the developing neural network, exemplified by lack of a myenteric plexus and extensive overgrowth of fibers. Thus, Hand2 is essential for neurogenesis, neurotransmitter specification and neural network patterning in the developing ENS.