The sensory vesicle of ascidians is thought to be homologous to the vertebrate forebrain and midbrain (Development 125 (1998) 1113). Here we report the isolation of two sensory vesicle markers in the ascidian Ciona intestinalis, which are homologs of vertebrate otx and gsx homeobox genes. By using these markers to analyze the induction of anterior neural tissue in Ciona, we find that the restriction of anterior neural fate to the progeny of the anterior animal blastomeres is due to a combination of two factors. The vegetal blastomeres show a differential inducing activity along the anterior-posterior axis, while the competence to respond to this inducing signal is markedly higher in the anterior animal blastomeres than in the posterior animal blastomeres. This differential competence to respond is also observed in response to bFGF, a candidate neural inducer in ascidians (J. Physiol. 511.2 (1998) 347) and can be detected by the gastrula stage. Our results, however, indicate that bFGF can only induce a subset of the responses of the endogenous inducer, suggesting that additional signals in the embryo are necessary to induce a fully patterned nervous system.