Ectodermal patterning of the chick embryo begins in the uterus and continues during gastrulation, when cells with a neural fate become restricted to the neural plate around the primitive streak, and cells fated to become the epidermis to the periphery. The prospective epidermis at early stages is characterized by the expression of the homeobox gene DLX5, which remains an epidermal marker during gastrulation and neurulation. Later, some DLX5-expressing cells become internalized into the ventral forebrain and the neural crest at the hindbrain level. We studied the mechanism of ectodermal patterning by transplantation of Hensen's nodes and prechordal plates. The DLX5 marker indicates that not only a neural plate, but also a surrounding epidermis is induced in such operations. Similar effects can be obtained with neural plate grafts. These experiments demonstrate that the induction of a DLX5-positive epidermis is triggered by the midline, and the effect is transferred via the neural plate to the periphery. By repeated extirpations of the endoderm we suppressed the formation of an endoderm/mesoderm layer under the epiblast. This led to the generation of epidermis, and to the inhibition of neuroepithelium in the naked ectoderm. This suggests a signal necessary for neural, but inhibitory for epidermal development, normally coming from the lower layers. Finally, we demonstrate that BMP4, as well as BMP2, is capable of inducing epidermal fate by distorting the epidermis-neural plate boundary. This, however, does not happen independently within the neural plate or outside the normal DLX5 domain. In the area opaca, the co-transplantation of a BMP4 bead with a node graft leads to the induction of DLX5, thus indicating the cooperation of two factors. We conclude that ectodermal patterning is achieved by signalling both from the midline and from the periphery, within the upper but also from the lower layers.