The mesencephalic/rhombomere 1 border (isthmus) is an organizing center for early development of midbrain and cerebellum. In this review, we summarize recent progress in studies of Fgf signaling in the isthmus and discuss how the isthmus instructs the differentiation of the midbrain versus cerebellum. Fgf8 is shown to play a pivotal role in isthmic organizer activity. Only a strong Fgf signal mediated by Fgf8b activates the Ras-extracellular signal-regulated kinase (ERK) pathway, and this is sufficient to induce cerebellar development. A lower level of signaling transduced by Fgf8a, Fgf17 and Fgf18 induce midbrain development. Numerous feedback loops then maintain appropriate mesencephalon/rhombomere1 and organizer gene expression.