The olfactory sensory epithelium and the respiratory epithelium are derived from the olfactory placode. However, the molecular mechanisms regulating the differential specification of the sensory and the respiratory epithelium have remained undefined. To address this issue, we first identified Msx1/2 and Id3 as markers for respiratory epithelial cells by performing quail chick transplantation studies. Next, we established chick explant and intact chick embryo assays of sensory/respiratory epithelial cell differentiation and analyzed two mice mutants deleted of Bmpr1a;Bmpr1b or Fgfr1;Fgfr2 in the olfactory placode. In this study, we provide evidence that in both chick and mouse, Bmp signals promote respiratory epithelial character, whereas Fgf signals are required for the generation of sensory epithelial cells. Moreover, olfactory placodal cells can switch between sensory and respiratory epithelial cell fates in response to Fgf and Bmp activity, respectively. Our results provide evidence that Fgf activity suppresses and restricts the ability of Bmp signals to induce respiratory cell fate in the nasal epithelium. In addition, we show that in both chick and mouse the lack of Bmp or Fgf activity results in disturbed placodal invagination; however, the fate of cells in the remaining olfactory epithelium is independent of morphological movements related to invagination. In summary, we present a conserved mechanism in amniotes in which Bmp and Fgf signals act in an opposing manner to regulate the respiratory versus sensory epithelial cell fate decision.