The early patterning of the vertebrate central nervous system involves the generation of progenitor cells with distinct fates at rostral and caudal levels of the neuraxis. We provide evidence that the assignment of early rostrocaudal differences in progenitor cell properties is established by spatial restrictions in the signaling properties of the paraxial mesoderm and epidermal ectoderm. Caudal level paraxial mesoderm secretes a factor, distinct from retinoic acid or fibroblast growth factors (FGFs), that can impose caudal fates on prospective anterior proencephalic progenitors. The caudalizing activity of the paraxial mesoderm can, however, be induced by FGF signaling. The distinct properties of cells at rostral and caudal levels of the neural plate appear to depend, in addition, on the early exclusion of bone morphogenetic proteins (BMPs) from rostral level epidermal ectoderm. Thus, differences in the signaling properties of cell groups that flank the neural plate appear to contribute to the early rostrocaudal identity of neural cells, distinguishing progenitor cells at prospective anterior proencephalic regions from those at more caudal levels of the neuraxis.