The Lsh protein is specifically expressed at the subventricular zone, lining the ventricles and comprising neural stem cells and neural precursors during development. We found that propagation of neurospheres, an indicator for stem cell renewal, was greatly impaired in the absence of Lsh. Though Lsh-/- neural precursors could differentiate, their ability was delayed in vitro suggesting that the compromised self-renewal and growth was not due to premature differentiation of Lsh-/- stem cells. An unbiased approached identified de-regulation of a subset of genes involved in cell cycle control and growth, including a reduction of Bmp4 and Sox2 and an increase in Cdkn1a (p21) in vitro and in vivo. Examining several enhancers of the Bmp4 and Cdkn1a genes, we observed alterations of H3K4me1 and loss of DNA methylation. A most pronounced alteration occurred at Enh2 (enhancer 2) of Bmp4 in Lsh depleted neural precursors. We also observed a change in nucleosome occupancy suggesting that the Bmp4 enhancer may serve as important genomic target for Lsh function. Our data suggests a hierarchy of Lsh induced chromatin changes leading to de-regulation of cell cycle effectors and impaired self-renewal capacity of neural stem cells. Lsh ablation alters chromatin states at important regulatory loci of neural genes. The epigenetic changes are associated with gene expression changes, impaired growth and self-renewal of neural stem cells and precursors. Our results suggest a direct role for Lsh in nervous system development. The deregulation of Bmp4 and the reduced capacity of stem cell self-renewal may suggest novel pathways for the treatment of ICF patients.