An important developmental question concerns whether neurotransmitter phenotype is an inherent property of neurons or is influenced by target tissues. This issue can be addressed in the avian ciliary ganglion (CG) which contains two cholinergic populations, ciliary and choroid neurons, that differentially express the peptide cotransmitter, somatostatin. The present study tests the hypothesis that differences in the level of expression of activin A and its endogenous inhibitor follistatin in CG neuron target tissues are responsible for selective expression of somatostatin in choroid neurons. Intraocular injection of activin A or follistatin (300 ng injected at E10/E11) in cultured embryos resulted in a 39% increase or a 23% decrease, respectively, in somatostatin-positive neurons relative to controls. Chorioallantoic membrane application of follistatin (1 microgram daily from E7 to E13) reduced somatostatin positive neurons by 54%. Neuron number, size, and target tissue morphology were unaffected by these treatments. Together with our previous studies, these data suggest that activin A and follistatin are target-derived molecules that regulate neuropeptide phenotype in the ciliary ganglion.