The neural crest is a unique cell population induced at the lateral border of the neural plate. Neural crest is not produced at the anterior border of the neural plate, which is fated to become forebrain. Here, the roles of BMPs, FGFs, Wnts, and retinoic acid signaling in neural crest induction were analyzed by using an assay developed for investigating the posteriorization of the neural plate. Using specific markers for the anterior neural plate border and the neural crest, the posterior end of early neurula embryos was shown to be able to transform the anterior neural plate border into neural crest cells. In addition, tissue expressing anterior neural plate markers, induced by an intermediate level of BMP activity, was transformed into neural crest by posteriorizing signals. This transformation was mimicked by bFGF, Wnt-8, or retinoic acid treatment and was also inhibited by expression of the dominant negative forms of the FGF receptor, the retinoic acid receptor, and Wnt signaling molecules. The transformation of the anterior neural plate border into neural crest cells was also achieved in whole embryos, by retinoic acid treatment or by use of a constitutively active form of the retinoic acid receptor. By analyzing the expression of mesodermal markers and various graft experiments, the expression of the mutant retinoic acid receptor was shown to directly affect the ectoderm. We thereby propose a two-step model for neural crest induction. Initially, BMP levels intermediate to those required for neural plate and epidermal specification induce neural folds with an anterior character along the entire neural plate border. Subsequently, the most posterior region of this anterior neural plate border is transformed into the neural crest by the posteriorizing activity of FGFs, Wnts, and retinoic acid signals. We discuss a unifying model where lateralizing and posteriorizing signals are presented as two stages of the same inductive process required for neural crest induction.