The transcription factor Math1 (encoded by the gene Atoh1, also called Math1) is required for the formation of mechanosensory hair cells in the inner ear; however, its specific molecular role is unknown. Here we show that absence of Math1 in mice results in a complete disruption of formation of the sensory epithelium of the cochlea, including the development of both hair cells and associated supporting cells. In addition, ectopic expression of Math1 in nonsensory regions of the cochlea is sufficient to induce the formation of sensory clusters that contain both hair cells and supporting cells. The formation of these clusters is dependent on inhibitory interactions mediated, most probably, through the Notch pathway, and on inductive interactions that recruit cells to develop as supporting cells through a pathway independent of Math1. These results show that Math1 functions in the developing cochlea to initiate both inductive and inhibitory signals that regulate the overall formation of the sensory epithelia.