The initial development of the nervous system depends on an intricate interplay of inductive signals, stem cell lineage progression from ectodermal to neural stem cells, cell proliferation, and cellular movements. In addition to the early establishment of regional identity, cellular identity, and cellular position within the brain, substantial migration of neuronal precursors is necessary for the subsequent differentiation of classes of neurons and the eventual formation of specialized patterns of synaptic connections (see Chapters 8 and 23). The fate of individual precursor cells is not determined simply by their mitotic history; rather, the information required for differentiation arises from interactions between the developing cells, local signaling molecules, and the subsequent activity of distinct transcriptional regulators. A final step in the initial differentiation of the nervous system is the specification and differentiation of the sensory placodes. These “neural outposts” in the periphery of the early embryo are key for establishing communication between the outside sensory world and the nervous system. They engage both local ectoderm and neural crest cells to generate peripheral sensory neurons such as the somatosensory neurons of the dorsal root and cranial sensory ganglia, the olfactory receptor neurons, and the hair cells and supporting structures of the inner ear. Although the neural portion of the retina is derived from the CNS, supporting structures such as the lens and cornea arise from placodal tissues. All of these events depend on the same categories of molecular and cellular phenomena: cell-cell signaling, changes in motility and adhesion, transcriptional regulation, and ultimately, cell-specific changes in gene expression. The molecules that participate in signaling during early brain development are the same as the signals used by mature cells: hormones, transcription factors, and second messengers (see Chapter 7), as well as cell adhesion molecules. The importance of signals in the progression from multipotent ectodermal stem cell is essential for the appropriate development of the central and peripheral nervous system. The identification and characterization of these molecules in the developing brain, the regions they specify and the stem cells they influence have begun to explain a variety of congenital neurological defects, as well as providing initial insight into the genetic and cellular basis of a number of developmental disorders. These associations with brain pathologies reflect the vulnerability of signaling and transcriptional regulation during early neural development to the effects of genetic mutations, as well as to the actions of the many drugs and other chemicals that can compromise the elaboration of a typical nervous system.