Sensory placodes are ectodermal thickenings that give rise to elements of the vertebrate cranial sensory nervous system, including the inner ear and nose. Although mutations have been described in humans, mice and zebrafish that perturb ear and nose development, no mutation is known to prevent sensory placode formation. Thus, it has been postulated that a functional redundancy exists in the genetic mechanisms that govern sensory placode development. We describe a zebrafish deletion mutation, b380, which results in a lack of both otic and olfactory placodes. The b380 deletion removes several known genes and expressed sequence tags, including dlx3 and dlx7, two transcription factors that share a homoeobox domain similar in sequence to the Drosophila Distal-less gene. dlx3 and dlx7 are expressed in an overlapping pattern in the regions that produce the otic and olfactory placodes in zebrafish. We present evidence suggesting that it is specifically the removal of these two genes that leads to the otic and olfactory phenotype of b380 mutants. Using morpholinos, antisense oligonucleotides that effectively block translation of target genes, we find that functional reduction of both dlx genes contributes to placode loss. Expression patterns of the otic marker pax2.1, olfactory marker anxV and eya1, a marker of both placodes, in morpholino-injected embryos recapitulate the reduced expression of these genes seen in b380 mutants. We also examine expression of dlx3 and dlx7 in the morpholino-injected embryos and present evidence for existence of auto- and cross-regulatory control of expression among these genes. We demonstrate that dlx3 is necessary and sufficient for proper otic and olfactory placode development. However, our results indicate that dlx3 and dlx7 act in concert and their importance in placode formation is only revealed by inactivating both paralogs.