The zebrafish muscle segment homeobox genes msxB, msxC and msxE are expressed in partially overlapping domains in the neural crest and preplacodal ectoderm. We examined the roles of these msx genes in early development. Disrupting individual msx genes causes modest variable defects, whereas disrupting all three produces a reproducible severe phenotype, suggesting functional redundancy. Neural crest differentiation is blocked at an early stage. Preplacodal development begins normally, but placodes arising from the msx expression domain later show elevated apoptosis and are reduced in size. Cell proliferation is normal in these tissues. Unexpectedly, Msx-deficient embryos become ventralized by late gastrulation whereas misexpression of msxB dorsalizes the embryo. These effects appear to involve Distal-less (Dlx) protein activity, as loss of dlx3b and dlx4b suppresses ventralization in Msx-depleted embryos. At the same time, Msx-depletion restores normal preplacodal gene expression to dlx3b-dlx4b mutants. These data suggest that mutual antagonism between Msx and Dlx proteins achieves a balance of function required for normal preplacodal differentiation and placement of the neural-nonneural border.