During vertebrate inner ear development, compartmentalization of the auditory and vestibular apparatuses along two axes depends on the patterning of transcription factors expressed in a region-specific manner. Although most of the patterning is regulated by extrinsic signals, it is not known how Nkx5.1 and Msx1 are patterned. We focus on Dan, the founding member of the Cerberus/Dan gene family that encodes BMP antagonists, and describe its function in morphogenesis and patterning. First, we confirmed that Dan is expressed in the dorso-medial region of the otic vesicle that corresponds to the presumptive endolymphatic duct and sac (ed/es). Second, we used siRNA knockdown to demonstrate that depletion of Dan induced both a severe reduction in the size of the ed/es and moderate deformities of the semicircular canals and cochlear duct. Depletion of Dan also caused suppression of Nkx5.1 in the dorso-lateral region, suppression of Msx1 in the dorso-medial region, and ectopic induction of Nkx5.1 and Msx1 in the ventro-medial region. Most of these phenotypes also appeared following misexpression of the constitutively active form of BMP receptor type Ib. Thus, Dan is required for the normal morphogenesis of the inner ear and, by inhibiting BMP signaling, for the patterning of the transcription factors Nkx5.1 and Msx1.