Cell fate decisions in early embryonic cells are controlled by interactions among developmental regulatory genes. Zebrafish floating head mutants lack a notochord; instead, muscle forms under the neural tube. As shown previously, axial mesoderm in floating head mutant gastrulae fails to maintain expression of notochord genes and instead expresses muscle genes. Zebrafish spadetail mutant gastrulae have a nearly opposite phenotype; notochord markers are expressed in a wider domain than in wild-type embryos and muscle marker expression is absent. We examined whether these two phenotypes revealed an antagonistic genetic interaction by constructing the double mutant. Muscle does not form in the spadetail;floating head double mutant midline, indicating that spadetail function is required for floating head mutant axial mesoderm to transfate to muscle. Instead, the midline of spadetail;floating head double mutants is greatly restored compared to that of floating head mutants; the floor plate is almost complete and an anterior notochord develops. In addition, we find that floating head mutant cells can make both anterior and posterior notochord when transplanted into a wild-type host, showing that enviromental signals can override the predisposition of floating head mutant midline cells to make muscle. Taken together, these results suggest that repression of spadetail function by floating head is critical to promote notochord fate and prevent midline muscle development, and that cells can be recruited to the notochord by environmental signals.