The inner ear derives from a patch of ectoderm defined by expression of the transcription factor Pax2. We recently showed that this Pax2(+) ectoderm gives rise not only to the otic placode but also to the surrounding cranial epidermis, and that Wnt signaling mediates this placode-epidermis fate decision. We now present evidence for reciprocal interactions between the Wnt and Notch signaling pathways during inner ear induction. Activation of Notch1 in Pax2(+) ectoderm expands the placodal epithelium at the expense of cranial epidermis, whereas loss of Notch1 leads to a reduction in the size of the otic placode. We show that Wnt signaling positively regulates Notch pathway genes such as Jag1, Notch1 and Hes1, and we have used transgenic Wnt reporter mice to show that Notch signaling can modulate the canonical Wnt pathway. Gain- and loss-of-function mutations in the Notch and Wnt pathways reveal that some aspects of otic placode development - such as Pax8 expression and the morphological thickening of the placode - can be regulated independently by either Notch or Wnt signals. Our results suggest that Wnt signaling specifies the size of the otic placode in two ways, by directly upregulating a subset of otic genes, and by positively regulating components of the Notch signaling pathway, which then act to augment Wnt signaling.