BETA2/NeuroD1 is a bHLH transcription factor that is expressed during development in the mammalian pancreas and in many locations in the central and peripheral nervous systems. During inner ear ontogenesis, it is present in both sensory ganglion neurons and sensory epithelia. Although studies have shown that BETA2/NeuroD1 is important in the development of the hippocampal dentate gyrus and the cerebellum, its functions in the peripheral nervous system and in particular in the inner ear are unclear. Mice carrying a BETA2/NeuroD1 null mutation exhibit behavioral abnormalities suggestive of an inner ear defect, including lack of responsiveness to sound, hyperactivity, head tilting, and circling. Here we show that these defects can be explained by a severe reduction of sensory neurons in the cochlear-vestibular ganglion (CVG). A developmental study of CVG formation in the null demonstrates that BETA2/NeuroD1 does not play a primary role in the proliferation of neuroblast precursors or in their decision to become neuroblasts. Instead, the reduction in CVG neuron number is caused by a combination both of delayed or defective delamination of CVG neuroblast precursors from the otic vesicle epithelium and of enhanced apoptosis both in the otic epithelium and among those neurons that do delaminate to form the CVG. There are also defects in differentiation and patterning of the cochlear duct and sensory epithelium and loss of the dorsal cochlear nucleus. BETA2/NeuroD1 is, thus, the first gene to be shown to regulate neuronal and sensory cell development in both the cochlear and vestibular systems.