The floor plate is located at the ventral midline of the neural tube and has been implicated in neural cell patterning and axon guidance. To address the cellular mechanisms involved in floor plate differentiation, we have used an assay that monitors the expression of floor-plate-specific antigens in neural plate explants cultured in the presence of inducing tissues. Contact-mediated signals from both the notochord and the floor plate act directly on neural plate cells to induce floor plate differentiation. Floor plate induction is initiated medially by a signal from the notochord, but appears to be propagated to more lateral cells by homeogenetic signals that derive from medial floor plate cells. The response of neural plate cells to inductive signals declines with embryonic age, suggesting that the mediolateral extent of the floor plate is limited by a loss of competence of neural cells. The rostral boundary of the floor plate at the midbrain-forebrain junction appears to result from the lack of inducing activity in prechordal mesoderm and the inability of rostral neural plate cells to respond to inductive signals.