The nasal placode shares a common origin with other sensory placodes within a pre-placodal domain at the cranial neural plate border. However, little is known about early events in nasal placode development as it segregates from prospective lens, neural tube and epidermis. Here, Dlx3, Dlx5, Pax6 and the pan-neuronal marker Hu serve as molecular labels to follow the maturation of olfactory precursors over time. When competence to form olfactory placode was tested by grafting ectoderm from different axial levels to the anterior neural fold, we found that competence is initially broad for head, but not trunk, ectoderm and declines rapidly with time. Isolated olfactory precursors are specified by HH10, concomitant with their complete segregation from other placodal, epidermal and neural progenitors. Heterotopic transplantation of olfactory progenitors reveals they are capable of autonomous differentiation only 12 hours later, shortly before overt placode invagination at HH14. Taken together, these results show that olfactory placode development is a step-wise process whereby signals from adjacent tissues specify competent ectoderm at or before HH10, followed by gradual commitment just prior to morphological differentiation.