Cranial placodes are focal regions of columnar epithelium next to the neural tube that contribute to sensory ganglia and organs in the vertebrate head, including the olfactory epithelium and the crystalline lens of the eye. Using focal dye labelling within the presumptive placode domain, we show that lens and nasal precursors arise from a common territory surrounding the anterior neural plate. They then segregate over time and converge to their final positions in discrete placodes by apparently directed movements. Since these events closely parallel the separation of eye and antennal primordia (containing olfactory sensory cells) from a common imaginal disc in Drosophila, we investigated whether the vertebrate homologues of Distalless (Dll) and Eyeless (Ey), which determine antennal and eye identity in the fly, play a role in segregation of lens and nasal precursors in the chick. Dlx5 and Pax6 are initially co-expressed by future lens and olfactory cells. As soon as presumptive lens cells acquire columnar morphology all Dlx family members are down-regulated in the placode, while Pax6 is lost in the olfactory region. Lens precursor cells that express ectopic Dlx5 never acquire lens-specific gene expression and are excluded from the lens placode to cluster in the head ectoderm. These results suggest that the loss of Dlx5 is required for cells to adopt a lens fate and that the balance of Pax6 and Dlx expression regulates cell sorting into appropriate placodal domains.