Vertebrate hearing and balance are based in complex asymmetries of inner ear structure. Here, we identify retinoic acid (RA) as an extrinsic signal that acts directly on the ear rudiment to affect its compartmentalization along the anterior-posterior axis. A rostrocaudal wave of RA activity, generated by tissues surrounding the nascent ear, induces distinct responses from anterior and posterior halves of the inner ear rudiment. Prolonged response to RA by posterior otic tissue correlates with Tbx1 transcription and formation of mostly nonsensory inner ear structures. By contrast, anterior otic tissue displays only a brief response to RA and forms neuronal elements and most sensory structures of the inner ear.