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The nervous system is composed of two separate compartments, the central and the peripheral nervous system. The peripheral nervous system (PNS) composed mainly of sensory organs transmits sensory information to the central nervous system (CNS) comprising the brain and the spinal cord. The CNS then processes this information and modifies the behaviour of the organism appropriately. To understand the functioning of these systems one has to understand how the different cell types belonging to these systems are generated during the course of embryonic development. Using the chick eye with the lens, which arises from the region that gives rise to components of PNS, and the retina, belonging to the CNS, as an embryonic model tissue the following questions were addressed: how do the BMP and the FGF signalling pathways affect developmental processes within the lens and retina? When do retinal cells get specified and how do the lens and the retina interact with each other during early development? These questions were addressed by using a combination of in vitro and in vivo assays in chick embryos. We show in chick that lens cells are committed to a lens identity, concomitant with the up-regulation of the lens specific marker, L-Maf. Before the onset of L-maf, or in the absence of ongoing BMP activity, lens cells switch to an olfactory fate. However, after cells have up-regulated L-Maf, they are no longer dependent upon BMP signaling for the next step of lens primary fiber differentiation, which is characterized by the onset of δ-crystallin. We provide evidence that the FGF signalling pathway is critical for regulating proliferation within the developing lens, while FGF and BMP signals cooperate with each other to regulate cell cycle exit. In addition we have characterized the expression of Equarin restricted to the differentiating population within the lens, and we show that this gene is subject to regulation by both FGF and BMP signalling. In the absence of FGF and BMP signals, Equarin expression is down-regulated similar to down-regulation of the cell cycle exit marker p27kip1. Over activation of BMP, but not FGF signals is sufficient to up-regulate Equarin expression within the lens. Concerning retinal cells, we provide evidence that retinal cells are not specified until stage 13 in chick. Prior to stage 13, retinal cells are initially specified as telencephalic cells. Our results indicate that prospective retinal cells require either BMP signals or lens tissue, to maintain a retinal identity and to promote further development of retinal cells.