Neural tube closure in vertebrates is achieved through a highly dynamic and coordinated series of morphogenic events that involve the neuroepithelium (neural plate) and adjacent surface ectoderm. Failure of this process in the caudal region causes spina bifida. The identity of the surface ectoderm-specific factors essential for neural tube closure remained unknown, until our laboratory identified and characterised the murine Grainyhead-like 3 (GRHL3) transcription factor. Grhl3 is exclusively expressed in a small cohort of surface ectodermal cells immediately adjacent to the neural plate (neural plate border) at E8.5, the developmental time-point preceding mouse neural tube closure. Constitutive inactivation of Grhl3 leads to failure in caudal neural tube closure, resulting in fully penetrant thoraco-lumbo-sacral spina bifida. To uncover the molecular mechanism underlying Grhl3-dependent neural tube closure, we employed single-cell RNA-sequencing (scRNA-Seq) to compare the transcriptomic profiles between the wild-type and Grhl3-null embryos at E8.5. Cluster analysis revealed 16 distinct cell populations, comprising all known major cell types in the caudal half of developing embryos. We found that Grhl3 is co-expressed with transcription factors Tfap2a and Tfap2c in neural plate border cells. RNA velocity and pseudo-time trajectory analyses predicted that they are a novel bipotent progenitor population that simultaneously gives rise to surface ectoderm and a subclass of mesoderm. Loss of Grhl3 expression disrupts this novel differentiation program. Specific deletion of a conditional allele of Grhl3 using a mouse line expressing Cre recombinase expressed from Tfap2a regulatory elements, recapitulated the spina bifida observed in constitutive Grhl3-null animals. This study clearly illustrates that at the initiation of neural tube closure, Grhl3-expressing neural plate border cells are neither surface ectodermal nor neuroepithelial cells, but a previously unidentified bipotent progenitor population essential for neural tube closure.