The inner ear, which contains the sensory organs specialised for audition and balance, develops from an ectodermal placode adjacent to the developing hindbrain. Tissue grafting and recombination experiments suggest that placodal development is directed by signals arising from the underlying mesoderm and adjacent neurectoderm. In mice, Fgf3 is expressed in the neurectoderm prior to and concomitant with placode induction and otic vesicle formation, but its absence affects only the later stages of otic vesicle morphogenesis. We show here that mouse Fgf10 is expressed in the mesenchyme underlying the prospective otic placode. Embryos lacking both Fgf3 and Fgf10 fail to form otic vesicles and have aberrant patterns of otic marker gene expression, suggesting that FGF signals are required for otic placode induction and that these signals emanate from both the hindbrain and mesenchyme. These signals are likely to act directly on the ectoderm, as double mutant embryos showed normal patterns of gene expression in the hindbrain. Cell proliferation and survival were not markedly affected in double mutant embryos, suggesting that the major role of FGF signals in otic induction is to establish normal patterns of gene expression in the prospective placode. Finally, examination of embryos carrying three out of the four mutant Fgf alleles revealed intermediate phenotypes, suggesting a quantitative requirement for FGF signalling in otic vesicle formation.