Previous studies suggest that Fgf8 has a key role in regulating vertebrate development. In the rostral head of the embryonic chicken, there are increasing numbers of separate Fgf8 domains; these are present in tissues that appear to have previously expressed Otx2. As Fgf8 expression becomes established, Otx2 expression weakens, but remains in cells abutting the Fgf8 expression domain. These Fgf8 expression domains are closely associated with tissues expressing Bmp4 and Shh. Based on analogy with the embryonic limb, we suggest that Fgf8, Bmp4 and Shh function together in patterning regions of the embryonic head. Gene expression changes are particularly prominent in 14-21 somite stage embryos in the rostral forebrain, during early morphogenesis of the telencephalic and optic vesicles, when several new interfaces of Fgf8, Bmp4 and Shh are generated. To gain insights into the functions of fibroblast growth factor 8 (FGF8) in the embryonic forebrain, we studied the effects of implanting beads containing this protein in the dorsal prosencephalon of embryonic day 2 chicken embryos. Ectopic FGF8 had profound effects on morphogenesis of the telencephalic and optic vesicles. It disrupted formation of the optic stalk and caused a transformation of the pigment epithelium into neural retina. Within the telencephalon, FGF8 beads frequently induced a sulcus that had features of an ectopic rostral midline. The sulcus separated the telencephalon into rostral and caudal vesicles. Furthermore, we present evidence that FGF8 can regulate regionalization of the prosencephalon through inhibition of Otx2 and Emx2 expression. Thus, these experiments provide evidence that FGF8 can regulate both morphogenesis and patterning of the rostral prosencephalon (telencephalic and optic vesicles). FGF8 beads can induce midline properties (e.g. a sulcus) and can modulate the specification and differentiation of adjacent tissues. We suggest that some of these effects are through regulating the expression of homeobox genes (Otx2 and Emx2) that are known to participate in forebrain patterning.