The facial neural crest (FNC), a pluripotent embryonic structure forming craniofacial structures, controls the activity of brain organisers and stimulates cerebrum growth. To understand how the FNC conveys its trophic effect, we have studied the role of Smad1, which encodes an intracellular transducer, to which multiple signalling pathways converge, in the regulation of Foxg1. Foxg1 is a transcription factor essential for telencephalic specification, the mutation of which leads to microcephaly and mental retardation. Smad1 silencing, based on RNA interference (RNAi), was performed in pre-migratory FNC cells. Soon after electroporation of RNAi molecules, Smad1 inactivation abolished the expression of Foxg1 in the chick telencephalon, resulting in dramatic microcephaly and partial holoprosencephaly. In addition, the depletion of Foxg1 activity altered the expression Otx2 and Foxa2 in di/ mesencephalic neuroepithelium. However, when mutated forms of Smad1 mediating Fgf and Wnt signalling were transfected into FNC cells, these defects were overcome. We also show that, downstream of Smad1 activity, Dkk1, a Wnt antagonist produced by the FNC, initiated the specification of the telencephalon by regulating Foxg1 activity. Additionally, the activity of Cerberus in FNC-derived mesenchyme synergised with Dkk1 to control Foxg1 expression and maintain the balance between Otx2 and Foxa2.