Mutations in the highly conserved Aristaless-related homeodomain protein ARX have been shown to underlie multiple forms of X-linked mental retardation. Arx knockout mice exhibit thinner cerebral cortices because of decreased neural precursor proliferation, and also exhibit defects in the differentiation and migration of GABAergic interneurons. However, the role of ARX in the observed behavioral and developmental abnormalities is unclear. The regulatory functions of individual homeodomain proteins and the networks in which they act are frequently highly conserved across species, although these networks may be deployed in different developmental contexts. In Drosophila, aristaless mutants exhibit defects in the development of terminal appendages, and Aristaless has been shown to function with the LIM-homeodomain protein LIM1 to regulate leg development. Here, we describe the role of the Aristaless/Arx homolog alr-1 in C. elegans. We show that alr-1 acts in a pathway with the LIM1 ortholog lin-11 to regulate the development of a subset of chemosensory neurons. Moreover, we demonstrate that the differentiation of a GABAergic motoneuron subtype is affected in alr-1 mutants, suggesting parallels with ARX functions in vertebrates. Investigating ALR-1 functions in C. elegans may yield insights into the role of this important protein in neuronal development and the etiology of mental retardation.