Induction of otic placodes requires Fgf from surrounding tissues. We tested the hypothesis that mesendodermally derived Bmp-antagonists Chordin, Follistatin-a, and Crossveinless-2 cooperate in this process. Injecting morpholinos for all three genes, or treatment with the Nodal inhibitor SB431542 to block mesoderm-formation, reduces otic induction and strongly enhances the effects of disrupting fgf3 or fgf8. In contrast, using a lower dose of SB431542, combined with partial loss of Fgf, causes a dramatic medial expansion of otic tissue and formation of a single, large otic vesicle spanning the width of the hindbrain. Under these conditions, paraxial cephalic mesoderm forms ectopically at the midline, migrates into the head, and later transfates to form otic tissue beneath the hindbrain. Blocking expression of Bmp-antagonists blocks formation of medial otic tissue. These data show the importance of mesendodermal Bmp-antagonists for otic induction and that paraxial cephalic mesendoderm can facilitate its own otic differentiation under certain circumstances. Developmental Dynamics 238:1582–1594, 2009. © 2009 Wiley-Liss, Inc.