Recent molecular insights on how the ectodermal layer is patterned in vertebrates are reviewed. Studies on the induction of the central nervous system (CNS) by Spemann's Organizer led to the isolation of noggin and chordin. These secretory proteins function by binding to, and inhibiting, ventral BMPs, in particular BMP-4. Neural induction can be considered as the dorsalization of ectoderm, in which low levels of BMP-signaling result in CNS formation. At high levels of BMP signaling the ectoderm adopts a ventral fate and skin is formed. In Xenopus the forming neural plate already has extensive dorsal-ventral (D-V) patterning, and neural induction and D-V patterning may share common molecular mechanisms. At later stages sonic hedgehog (shh) plays a principal role in D-V patterning, particularly in the neural tube of the amniote embryo. A great many transcription factor markers are available and mouse knockouts provide evidence of their involvement in the regional specification of the neural tube. Recent evidence indicating that differentiation of posterior CNS is promoted by FGF, Wnt-3a, and retinoic acid is reviewed from the point of view of the classical experiments of Nieuwkoop that defined an activation and a transformation step during neural induction.