The vertebrate inner ear is a marvel of structural and functional complexity, which is all the more remarkable because it develops from such a simple structure, the otic placode. Analysis of inner ear development has long been a fascination of experimental embryologists, who sought to understand cellular mechanisms of otic placode induction. More recently, however, molecular and genetic approaches have made the inner ear a useful model system for studying a much broader range of basic developmental mechanisms, including cell fate specification and differentiation, axial patterning, epithelial morphogenesis, cytoskeletal dynamics, stem cell biology, neurobiology, physiology, etc. Of course, there has also been tremendous progress in understanding the functions and processes peculiar to the inner ear. The goal of this review is to recount how historical approaches have shaped our understanding of the signaling interactions controlling early otic development; to discuss how new findings have led to fundamental new insights; and to point out new problems that need to be resolved in future research.