We have identified a novel Iroquois (Iro) gene, iro7, in zebrafish. iro7 is expressed during gastrulation along with iro1 in a compartment of the dorsal ectoderm that includes the prospective midbrain-hindbrain domain, the adjacent neural crest and the trigeminal placodes in the epidermis. The iro1 and iro7 expression domain is expanded in headless and masterblind mutants, which are characterized by exaggerated Wnt signaling. Early expansion of iro1 and iro7 expression in these mutants correlates with expansion of the midbrain-hindbrain boundary (MHB) domain, the neural crest and trigeminal neurons, raising the possibility that iro1 and iro7 have a role in determination of these ectodermal derivatives. A knockdown of iro7 function revealed that iro7 is essential for the determination of neurons in the trigeminal placode. In addition, a knockdown of both iro1 and iro7 genes uncovered their essential roles in neural crest development and establishment of the isthmic organizer at the MHB. These results suggest a new role for Iro genes in establishment of an ectodermal compartment after Wnt signaling in vertebrate development. Furthermore, analysis of activator or repressor forms of iro7 suggests that iro1 and iro7 are likely to function as repressors in establishment of the isthmic organizer and neural crest, and Iro genes may have dual functions as repressors and activators in neurogenesis.