During gastrulation in vertebrates the cells of the embryonic ectoderm give rise to epidermal progenitors in the ventral side and neural progenitors in the dorsal side. Despite many years of scrutiny, the molecular basis of these important embryonic cell fate decisions have not been solved. Only recently have we witnessed swift progress in the quest for factors involved in neural and epidermal induction. Several of what seem to be bona fide in vivo neural and epidermal inducers have been cloned, and the mechanism of their functions in embryos is also beginning to be understood. These new molecular results have revolutionized our view on the patterning of embryonic ectoderm and suggest that while the induction of epidermis requires instructive inductive signals, the establishment of neural fate occurs by default when epidermal inducers are inhibited. In this review, we discuss recent advances of our knowledge on epidermal and neural induction in the context of the 'default model'. We will then address the process of neurogenesis as well as recent findings on neural patterning. Emphasis is placed on, but not limited to, discoveries made in Xenopus, as most of our progress in understanding the ectodermal patterning is obtained from studies using this organism.