The thyroid is an endocrine gland in all vertebrates that develops from the ventral floor of the anterior pharyngeal endoderm. Unravelling the molecular mechanisms of thyroid development helps to understand congenital hypothyroidism caused by the absence or reduction of this gland in newborn humans. Severely reduced or absent thyroid-specific developmental genes concomitant with the complete loss of the functional gland in the zebrafish hands off (han, hand2) mutant reveals the han gene as playing a novel, crucial role in thyroid development. han-expressing tissues surround the thyroid primordium throughout development. Fate mapping reveals that, even before the onset of thyroid-specific developmental gene expression, thyroid precursor cells are in close contact with han-expressing cardiac lateral plate mesoderm. Grafting experiments show that han is required in surrounding tissue, and not in a cell-autonomous manner, for thyroid development. Loss of han expression in the branchial arches and arch-associated cells after morpholino knock-down of upstream regulator genes does not impair thyroid development, indicating that other han-expressing structures, most probably cardiac mesoderm, are responsible for the thyroid defects in han mutants. The zebrafish ace (fgf8) mutant has similar thyroid defects as han mutants, and chemical suppression of fibroblast growth factor (FGF) signalling confirms that this pathway is required for thyroid development. FGF-soaked beads can restore thyroid development in han mutants, showing that FGFs act downstream of or in parallel to han. These data suggest that loss of FGF-expressing tissue in han mutants is responsible for the thyroid defects.