The Six3 and Rx3 homeodomain proteins are essential for the specification and proliferation of forebrain and retinal precursor cells of the vertebrate brain, and the regulatory networks that control their expression are beginning to be elucidated. We identify the zebrafish lmo4b gene as a negative regulator of forebrain growth that acts via restriction of six3 and rx3 expression during early segmentation stages. Loss of lmo4b by morpholino knockdown results in enlargement of the presumptive telencephalon and optic vesicles and an expansion of the post-gastrula expression domains of six3 and rx3. Overexpression of lmo4b by mRNA injection causes complementary phenotypes, including a reduction in the amount of anterior neural tissue, especially in the telencephalic, optic and hypothalamic primordia, and a dosage-sensitive reduction in six3 and rx3 expression. We suggest that lmo4b activity is required at the neural boundary to restrict six3b expression, and later within the neural plate to for attenuation of rx3 expression independently of its effect on six3 transcription. We propose that lmo4b has an essential role in forebrain development as a modulator of six3 and rx3 expression, and thus indirectly influences neural cell fate commitment, cell proliferation and tissue growth in the anterior CNS.