The neural crest and sensory placodes arise from a region of the embryonic ectoderm that lies between the neural plate and future epidermis. While some of the signalling pathways that are involved in cell fate determination at the border of the neural plate have been characterised, it is still unclear how different signals are integrated. Transcription factors of the DLX gene family that may mediate such cell fate decisions are expressed at the border of the neural plate. Here, we demonstrate that DLX5 is involved in positioning this border by repressing neural properties and simultaneously by promoting the formation of border-like cells that express the neural fold markers MSX1 and BMP4 and the preplacodal region marker SIX4. However, DLX5 is not sufficient to impart epidermal character or to specify cell fates that arise at the border of the neural plate, like neural crest or fully formed sensory placodes, in a cell-autonomous manner. Additional signals are generated when mature neural plate and epidermis interact and these are required for neural crest formation. We propose that patterning of the embryonic ectoderm is a multistep process that sequentially subdivides the ectoderm into regions with defined cell fates.