Borders are important as they demarcate developing tissue into distinct functional units. A key challenge is the discovery of mechanisms that can convert morphogen gradients into tissue borders. While mechanisms that produce ultrasensitive cellular responses provide a solution, how extracellular morphogens drive such mechanisms remains poorly understood. Here, we show how Bone Morphogenetic Protein (BMP) and Fibroblast Growth Factor (FGF) pathways interact to generate ultrasensitivity and borders in the dorsal telencephalon. BMP and FGF signaling manipulations in explants produced border defects suggestive of cross inhibition within single cells, which was confirmed in dissociated cultures. Using mathematical modeling, we designed experiments that ruled out alternative cross inhibition mechanisms and identified a cross-inhibitory positive feedback (CIPF) mechanism, or "toggle switch", which acts upstream of transcriptional targets in dorsal telencephalic cells. CIPF explained several cellular phenomena important for border formation such as threshold tuning, ultrasensitivity, and hysteresis. CIPF explicitly links graded morphogen signaling in the telencephalon to switch-like cellular responses and has the ability to form multiple borders and scale pattern to size. These benefits may apply to other developmental systems.