Mammalian auditory sensation is mediated by the organ of Corti, a specialized sensory epithelium found in the cochlea of the inner ear. Proper auditory function requires that the many different cell types found in the sensory epithelium be precisely ordered within an exquisitely patterned cellular mosaic. The development of this mosaic depends on a series of cell fate decisions that transform the initially nearly uniform cochlear epithelium into the complex structure of the mature organ of Corti. The prosensory domain, which contains the progenitors of both the mechanosensory hair cells and their associated supporting cells, first becomes distinct from both the neural and the nonsensory domains. Further cell fate decisions subdivide prosensory cells into populations of inner and outer hair cells, and several different types of supporting cells. A number of different signaling pathways and transcription factors are known to be necessary for these developmental processes; in this review, we will summarize these results with an emphasis on recent findings.