The mammalian cochlea contains two types of mechanosensory hair cell that have different and critical functions in hearing. Inner hair cells (IHCs), which have an elaborate presynaptic apparatus, signal to cochlear neurons and communicate sound information to the brain. Outer hair cells (OHCs) mechanically amplify sound-induced vibrations, providing enhanced sensitivity to sound and sharp tuning. Cochlear hair cells are solely generated during development, and hair cell death-most often of OHCs-is the most common cause of deafness. OHCs and IHCs, together with supporting cells, originate in embryos from the prosensory region of the otocyst, but how hair cells differentiate into two different types is unknown1-3. Here we show that Insm1, which encodes a zinc finger protein that is transiently expressed in nascent OHCs, consolidates their fate by preventing trans-differentiation into IHCs. In the absence of INSM1, many hair cells that are born as OHCs switch fates to become mature IHCs. To identify the genetic mechanisms by which Insm1 operates, we compared the transcriptomes of immature IHCs and OHCs, and of OHCs with and without INSM1. In OHCs that lack INSM1, a set of genes is upregulated, most of which are normally preferentially expressed by IHCs. The homeotic cell transformation of OHCs without INSM1 into IHCs reveals a mechanism by which these neighbouring mechanosensory cells begin to differ: INSM1 represses a core set of early IHC-enriched genes in embryonic OHCs and makes them unresponsive to an IHC-inducing gradient, so that they proceed to mature as OHCs. Without INSM1, some of the OHCs in which these few IHC-enriched transcripts are upregulated trans-differentiate into IHCs, identifying candidate genes for IHC-specific differentiation.