Morphogenesis of the cartilaginous otic capsule is directed by interactions between the epithelial anlage of the membranous labyrinth (otocyst) and its associated periotic mesenchyme. Utilizing a developmental series of high-density (micromass) cultures of periotic mesenchyme to model capsule chondrogenesis, we have shown that the early influence of otic epithelium in cultures of 10.5- or 14-gestation day (gd) periotic mesenchyme results in initiation or suppression of chondrogenesis, respectively. Furthermore, we have shown that introduction of otic epithelium at two distinct times during in vitro development to cultures of 10.5-gd mesenchyme cells results first in an initiation and then in an inhibition of their chondrogenic response. These influences of epithelial tissue on chondrogenic differentiation by periotic mesenchyme are not tissue specific but are characterized by temporal selectivity. The ability of otic epithelium to influence chondrogenesis and the competence of the periotic mesenchyme to respond to its signals are dependent upon the developmental stage of both tissues. This study provides conclusive evidence that otic epithelium acts as a developmental "switch" during otic capsule morphogenesis, signaling first the turning on and then the turning off of chondrogenic programs in the responding cephalic mesenchyme.