Sensory placodes and neural crest cells are among the key cell populations that facilitated the emergence and diversification of vertebrates throughout evolution. Together, they generate the sensory nervous system in the head: both form the cranial sensory ganglia, while placodal cells make major contributions to the sense organs—the eye, ear and olfactory epithelium. Both are instrumental for integrating craniofacial organs and have been key to drive the concentration of sensory structures in the vertebrate head allowing the emergence of active and predatory life forms. Whereas the gene regulatory networks that control neural crest cell development have been studied extensively, the signals and downstream transcriptional events that regulate placode formation and diversity are only beginning to be uncovered. Both cell populations are derived from the embryonic ectoderm, which also generates the central nervous system and the epidermis, and recent evidence suggests that their initial specification involves a common molecular mechanism before definitive neural, neural crest and placodal lineages are established. In this review, we will first discuss the transcriptional networks that pattern the embryonic ectoderm and establish these three cell fates with emphasis on sensory placodes. Second, we will focus on how sensory placode precursors diversify using the specification of otic-epibranchial progenitors and their segregation as an example.