Precise regulation of neurogenesis is achieved in specific regions of the vertebrate nervous system by formation of distinct neurogenic and nonneurogenic zones. We have investigated how neurogenesis becomes confined to zones adjacent to rhombomere boundaries in the zebrafish hindbrain. The nonneurogenic zone at segment centers comprises a distinct progenitor population that expresses fibroblast growth factor (fgfr) 2, erm, sox9b, and the retinoic acid degrading enzyme, cyp26b1. FGF receptor activation upregulates expression of these genes and inhibits neurogenesis in segment centers. Cyp26 activity is a key effector inhibiting neuronal differentiation, suggesting antagonistic interactions with retinoid signaling. We identify the critical FGF ligand, fgf20a, which is expressed by specific neurons located in the mantle region at the center of segments, adjacent to the nonneurogenic zone. Fgf20a mutants have ectopic neurogenesis and lack the segment center progenitor population. Our findings reveal how signaling from neurons induces formation of a nonneurogenic zone of neural progenitors.