Vertebrate inner ear development is a complex process that involves the induction of a common territory for otic and epibranchial precursors and their subsequent segregation into otic and epibranchial cell fates. In zebrafish, the otic-epibranchial progenitor domain (OEPD) is induced by Fgf signaling in a Foxi1- and Dlx3b/4b-dependent manner, but the functional differences of Foxi1 and Dlx3b/4b in subsequent cell fate specifications within the developing inner ear are poorly understood. Based on pioneer tracking (PioTrack), a novel Cre-dependent genetic lineage tracing method, and genetic data, we show that the competence to embark on a neuronal or sensory fate is provided sequentially and very early during otic placode induction. Loss of Foxi1 prevents neuronal precursor formation without affecting hair cell specification, whereas loss of Dlx3b/4b inhibits hair cell but not neuronal precursor formation. Consistently, in Dlx3b/4b- and Sox9a-deficient b380 mutants almost all otic epithelial fates are absent, including sensory hair cells, and the remaining otic cells adopt a neuronal fate. Furthermore, the progenitors of the anterior lateral line ganglia also arise from the OEPD in a Foxi1-dependent manner but are unaffected in the absence of Dlx3b/4b or in b380 mutants. Thus, in addition to otic fate Foxi1 provides neuronal competence during OEPD induction prior to and independently of the Dlx3b/4b-mediated sensory fate of the developing inner ear.