The cartilaginous elements forming the pharyngeal arches of the zebrafish derive from cranial neural crest cells. Their proper differentiation and patterning are regulated by reciprocal interactions between neural crest cells and surrounding endodermal, ectodermal and mesodermal tissues. In this study, we show that the endodermal factors Runx3 and Sox9b form a regulatory cascade with Egr1 resulting in transcriptional repression of the fsta gene, encoding a BMP antagonist, in pharyngeal endoderm. Using a transgenic line expressing a dominant negative BMP receptor or a specific BMP inhibitor (dorsomorphin), we show that BMP signaling is indeed required around 30 hpf in the neural crest cells to allow cell differentiation and proper pharyngeal cartilage formation. Runx3, Egr1, Sox9b and BMP signaling are required for expression of runx2b, one of the key regulator of cranial cartilage maturation and bone formation. Finally, we show that egr1 depletion leads to increased expression of fsta and inhibition of BMP signaling in the pharyngeal region. In conclusion, we show that the successive induction of the transcription factors Runx3, Egr1 and Sox9b constitutes a regulatory cascade that controls expression of Follistatin A in pharyngeal endoderm, the latter modulating BMP signaling in developing cranial cartilage in zebrafish.