The tissue, cellular and molecular mechanisms that regulate early regional specification of the vertebrate forebrain are largely unknown. We studied the expression patterns of Xbf-1, an anterior (and telencephalon) neural-specific winged helix transcription factor and Fgf-8, an early-secreted factor. This study looked at Xbf-1 and Fgf-8 expression in combination with embryonic grafting experiments and also used beads containing the recombinant Fgf-8 protein to determine these factors' effects upon forebrain patterning events. We provide evidence that additional Fgf-8 displaces Xbf-1 expression posteriorly, suggesting a concentration dependence of Fgf-8 for the early distinct regionalization of the telencephalic primordia. Also, additional stage 15 mid-anterior neural ridge (mANR) transplants inhibited telencephalon development, whereas lateral ANR transplants facilitated increased areas of telencephalon development. In both cases, these transplantations promoted ectopic expression of Xbf-1. These studies suggested that the distinct regionalization of the forebrain primordia involves the inhibitory actions of the mANR towards a telencephalon development and maintaining bilateral telencephali. These telencephalic primordia are initially localized by optimal Fgf-8 expression. The anterior mANR will eventually become the anterior and rostral diencephalic tissue. This in vivo study demonstrated Fgf-8 and the mANR are important in forebrain regionalization.