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Abstract The anatomy and embryology of the dipnoan snout and olfactory organ play a major role in the discussion about the phylogenetic position of Dipnoi and the question of ancestry of Tetrapoda. This is primarily due to the fact that an internal nostril is regarded as an important preadaptive organ of the ancestors of tetrapods. Two conflicting scenarios of phylogenetic change were proposed in favour of different hypotheses of relationship. One emphasizes the similarities between Dipnoi and Chondrichthyes concerning this complex of characters. The other supports the idea of a close relationship of Dipnoi and Tetrapoda and a common origin of a ‘choana’ from the posterior external nostril of fishes. Accordingly, there is need for a detailed embryological and anatomical study which could help to clarify homologies and the basis of character evaluation. This, in the first place, concentrates on Neoceratodus forsteri. A plate reconstruction of the larval head provides many new insights which are important for comparison with the lepidosirenid lungfishes Protopterus and Lepidosiren and with other vertebrate taxa. The value of the peripheral nervous system as a topographical reference is critically reviewed. The results support the hypothesis that lungfish form a ‘primitive’ teleostomate group, closely adjoining Chondrichthyes in many characteristics of the snout formation. The relations between cranial nerves in the snout and the developing nasal sac, however, do not support the conclusion that the recent selachian condition is the exceptional ancestral character state of the lungfish snout. Dipnoi lack a ‘choana’, but nevertheless a closer relationship to tetrapods is not excluded. A vestigial and transitory naso-buccal connection in larvae of Neoceratodus might indicate such common ancestry, but has a completely different functional significance among fishes. It is shared with several plagiostomes and is, therefore, probably not useful as a synapomorphy of Dipnoi and Tetrapoda.