The vertebrate inner ear develops from initially 'simple' ectodermal placode and vesicle stages into the complex three-dimensional structure which is necessary for the senses of hearing and equilibrium. Although the main morphological events in vertebrate inner ear development are known, the genetic mechanisms controlling them are scarcely understood. Previous studies have suggested that the otic placode is induced by signals from the chordamesoderm and the hindbrain, notably by fibroblast growth factors (Fgfs) and Wnt proteins. Here we study the role of Fgf8 as a bona-fide hindbrain-derived signal that acts in conjunction with Fgf3 during placode induction, maintenance and otic vesicle patterning. Acerebellar (ace) is a mutant in the fgf8 gene that results in a non-functional Fgf8 product. Homozygous mutants for acerebellar (ace) have smaller ears that typically have only one otolith, abnormal semi-circular canals, and behavioral defects. Using gene expression markers for the otic placode, we find that ace/fgf8 and Fgf-signaling are required for normal otic placode formation and maintenance. Conversely, misexpression of fgf8 or Fgf8-coated beads implanted into the vicinity of the otic placode can increase ear size and marker gene expression, although competence to respond to the induction appears restricted. Cell transplantation experiments and expression analysis suggest that Fgf8 is required in the hindbrain in the rhombomere 4-6 area to restore normal placode development in ace mutants, in close neighbourhood to the forming placode, but not in mesodermal tissues. Fgf3 and Fgf8 are expressed in hindbrain rhombomere 4 during the stages that are critical for placode induction. Joint inactivation of Fgf3 and Fgf8 by mutation or antisense-morpholino injection causes failure of placode formation and results in ear-less embryos, mimicking the phenotype we observe after pharmacological inhibition of Fgf-signaling. Fgf8 and Fgf3 together therefore act during induction and differentiation of the ear placode. In addition to the early requirement for Fgf signaling, the abnormal differentiation of inner ear structures and mechanosensory hair cells in ace mutants, pharmacological inhibition of Fgf signaling, and the expression of fgf8 and fgf3 in the otic vesicle demonstrate independent Fgf function(s) during later development of the otic vesicle and lateral line organ. We furthermore addressed a potential role of endomesomerm by studying mzoep mutant embryos that are depleted of head endomesodermal tissue, including chordamesoderm, due to a lack of Nodal-pathway signaling. In these embryos, early placode induction proceeds largely normally, but the ear placode extends abnormally to midline levels at later stages, suggesting a role for the midline in restricting placode development to dorsolateral levels. We suggest a model of zebrafish inner ear development with several discrete steps that utilize sequential Fgf signals during otic placode induction and vesicle patterning.