The otic placode is a transient embryonic structure that gives rise to the inner ear. Although inductive signals for otic placode formation have been characterized, less is known about the molecules that respond to these signals within otic primordia. Here, we identify a mutation in zebrafish, hearsay, which disrupts the initiation of placode formation. We show that hearsay disrupts foxi1, a forkhead domain-containing gene, which is expressed in otic precursor cells before placodes become visible; foxi1 appears to be the earliest marker known for the otic anlage. We provide evidence that foxi1 regulates expression of pax8, indicating a very early role for this gene in placode formation. In addition, foxi1 is expressed in the developing branchial arches, and jaw formation is disrupted in hearsay mutant embryos.