In all vertebrates hearing and balance related information is transmitted from the ear to the brain by the neurons of the Statoacoustic Ganglion (SAG). SAG neuroblasts originate in the inner ear epithelium, undergo epithelial-mesenchymal transition, then leave and migrate to a region between the ear and the hindbrain to subsequently differentiate into mature neurons. Locally expressed Fgf sources initiate cell fate specification of SAG neuroblasts by inducing expression of Ngn1 in the ear epithelium. However, there are no proposed mechanisms to explain how transition to mesenchymal state is induced during SAG development. Here, we report Goosecoid (Gsc) as a key regulator of this process, a gene famous for inducing the formation of the Spemann organizer and initiating the migratory movements that define the future embryonic axes. In zebrafish, Fgf signaling co-regulates expression of gsc and ngn1 in partially overlapping domains. Loss of Gsc function impairs the ability of SAG neuroblasts to leave the ear and results in a significant loss of mature SAG neurons, whereas overexpression of Gsc increases the number of mesenchymal cells. Our analysis also reveals that Gsc induces transition to mesenchymal state without affecting the size of the neurogenic domain in the inner ear. Thus, Gsc and Ngn1 regulate epithelial-mesenchymal transition and neuronal specification as two distinct outputs of Fgf signaling. Furthermore, we discovered that medially expressed transcription factor Pax2a completely blocks Gsc function in the non-neurogenic regions of the developing inner ear, spatially restricting epithelial-mesenchymal transition to ventrolateral regions. The role of Gsc in SAG neurogenesis, together with its regulation of cell movement in the Spemann organizer and promotion of tumor metastasis indicates that Gsc might have a more widespread role in epithelial-mesenchymal dynamics than previously thought.