The aryl hydrocarbon receptors (AHR) are bHLH-PAS domain containing transcription factors. In mammals, they mediate responses to environmental toxins such as 2, 3, 7, 8-tetrachlorodibenzo-p-dioxin (TCDD). Such functions of AHRs require a cofactor, the aryl hydrocarbon receptor nuclear translocator (ARNT), and the cytoplasmic chaperonins HSP90 and XAP2. AHR homologs have been identified throughout the animal kingdom. We report here that the C. elegans orthologs of AHR and ARNT, ahr-1 and aha-1, regulate GABAergic motor neuron fate specification. Four C. elegans neurons known as RMED, RMEV, RMEL and RMER express the neurotransmitter GABA and control head muscle movements. ahr-1 is expressed in RMEL and RMER neurons. Loss of function in ahr-1 causes RMEL and RMER neurons to adopt a RMED/RMEV-like fate, whereas the ectopic expression of ahr-1 in RMED and RMEV neurons can transform them into RMEL/RMER-like neurons. This function of ahr-1 requires aha-1, but not daf-21/hsp90. Our results demonstrate that C. elegans ahr-1 functions as a cell-type specific determinant. This study further supports the notion that the ancestral role of the AHR proteins is in regulating cellular differentiation in animal development.