We investigated the role of vertical signals in the regulation of Engrailed-2, a regionally restricted (mesencephalon/metencephalon) neuroectodermal marker, using epiblast grafted from prospective neuroectoderm or prospective trunk mesoderm at mid-stage 3 in the gastrulating chick embryo. Grafts that were isolated from the rostral (prospective neuroectodermal) epiblast and placed rostral to or at the future mesencephalon/metencephalon level, between the endoderm and epiblast of stage 3d to stage 8 host embryos, expressed Engrailed-2 after 24 hr in culture, whereas these same grafts failed to express this marker when placed at a more caudal level. Grafts from caudal = (prospective trunk mesodermal) epiblast, which would ordinarily not express Engrailed-2, also expressed this marker when placed at the mesencephalon/metencephalon level, and failed to express it when grafted more caudally. The expression of four other markers, L5, Fgf8, Wnt-1, and paraxis, were also evaluated. Collectively, our results show that regionally restricted vertical signals are capable of inducing neuroectoderm from naive tissue, and of patterning epiblast to express some but not all mesencephalon/metencephalon isthmus markers. Experiments using grafts taken from older embryos indicated that the competence of prospective neuroectoderm to become regionally patterned by vertical signals is gradually lost between stage 3c and stage 7. Similarly, prospective mesoderm from the caudal epiblast becomes unable to respond to vertical, neural-inductive signals at these stages. These observations support a role for vertical signals in the induction and patterning of the neuroectoderm at gastrula and early neurula stages.