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During the embryonic period, many olfactory bulb (OB) interneurons arise in the lateral ganglionic eminence (LGE) from precursor cells expressing Dlx2, Gsh2 and Er81 transcription factors. Whether GABAergic and dopaminergic interneurons are also generated within the embryonic OB has not been studied thoroughly. In contrast to abundant Dlx2 and Gsh2 expression in ganglionic eminences (GE), Dlx2 and Gsh2 proteins are not expressed in the E12.5-13.5 mouse OB, whereas the telencephalic pallial domain marker Pax6 is abundant. We found GABAergic and dopaminergic neurons originating from dividing precursor cells in E13.5 OB and in short-term dissociated cultures prepared from the rostral half of E13.5 OB. In OB cultures, 22% of neurons were GAD+, of which 53% were Dlx2+, whereas none expressed Gsh2. By contrast, 70% of GAD+ cells in GE cultures were Dlx2+ and 16% expressed Gsh2. In E13.5 OB slices transplanted with EGFP-labeled E13.5 OB precursor cells, 31.7% of EGFP+ cells differentiated to GABAergic neurons. OB and LGE precursors transplanted into early postnatal OB migrated and differentiated in distinct patterns. Transplanted OB precursors gave rise to interneurons with dendritic spines in close proximity to synaptophysin-positive boutons. Interneurons were also abundant in differentiating OB neural stem cell cultures; the neurons responded to the neurotrophin Bdnf and expressed presynaptic proteins. In vivo, the Bdnf receptor TrkB colocalized with synaptic proteins at the glomeruli. These findings suggest that, in addition to receiving interneurons from the LGE, the embryonic OB contains molecularly distinct local precursor cells that generate mature GABAergic and doparninergic neurons.