The diencephalon is part of the prosencephalon (forebrain), which develops from the foremost primary cerebral vesicle. The prosencephalon differentiates into a  caudal diencephalon and  rostral telencephalon. The cerebral hemispheres develop from the sides of the telencephalon, each containing a lateral ventricle. The diencephalon consists of structures that are lateral to the third ventricle, and include the thalamus, the hypothalamus, the epithalamus and the subthalamus.