In zebrafish, sensory epithelia and neuroblasts of the inner ear form simultaneously in abutting medial and lateral domains, respectively, in the floor of the otic vesicle. Previous studies support regulatory roles for Fgf and Wnt, but how signaling is coordinated is poorly understood. We investigated this problem using pharmacological and transgenic methods to alter Fgf or Wnt signaling from early placodal stages to evaluate later changes in growth and patterning. Blocking Fgf at any stage reduces proliferation of otic tissue and terminates both sensory and neural specification. Wnt promotes proliferation in the otic vesicle but is not required for sensory or neural development. However, sustained overactivation of Wnt laterally expands sensory epithelia and blocks neurogenesis. pax2a, sp5a and sp5l are coregulated by Fgf and Wnt and show overlapping expression in the otic placode and vesicle. Gain- and loss-of-function studies show that these genes are together required for Wnt's suppression of neurogenesis, as well as some aspects of sensory development. Thus, pax2a, sp5a and sp5l are critical for mediating Fgf and Wnt signaling to promote spatially localized sensory and neural development.