The cell types of the inner ear originate from the otic placode, a thickened layer of ectoderm adjacent to the developing hindbrain. The placode invaginates and forms the otic pit, which pinches off as a small vesicle called the otocyst. Presumptive cochleovestibular neurons delaminate from the anterior ventral part of the otocyst and form the cochleovestibular ganglion of the inner ear. Here we show that the LIM/homeodomain protein islet-1 is expressed in cells of the ventral part of the otic placode and that this ventral expression is maintained at the otic pit and the otocyst stages. Auditory and vestibular neurons originate from this islet-1-positive zone of the otocyst, and these neurons maintain islet-1 expression until adulthood. We also demonstrate that islet-1 becomes up-regulated in the presumptive sensory epithelia of the inner ear in regions that are defined by the expression domains of BMP4. The up-regulation of islet-1 in developing inner ear hair and supporting cells is accompanied by down-regulation of Pax-2 in these cell types. Islet-1 expression in hair and supporting cells persists until early postnatal stages, when the transcriptional regulator is down-regulated in hair cells. Our data is consistent with a role for islet-1 in differentiating inner ear neurons and sensory epithelia cells, perhaps in the specification of cellular subtypes in conjunction with other LIM/homeodomain proteins. J. Comp. Neurol. 477:1–10, 2004. © 2004 Wiley-Liss, Inc.