During ectodermal patterning the neural crest and preplacodal ectoderm are specified in adjacent domains at the neural plate border. BMP signalling is required for specification of both tissues, but how it is spatially and temporally regulated to achieve this is not understood. Here, using a transgenic zebrafish BMP reporter line in conjunction with double-fluorescent in situ hybridisation, we show that, at the beginning of neurulation, the ventral-to-dorsal gradient of BMP activity evolves into two distinct domains at the neural plate border: one coinciding with the neural crest and the other abutting the epidermis. In between is a region devoid of BMP activity, which is specified as the preplacodal ectoderm. We identify the ligands required for these domains of BMP activity. We show that the BMP-interacting protein Crossveinless 2 is expressed in the BMP activity domains and is under the control of BMP signalling. We establish that Crossveinless 2 functions at this time in a positive-feedback loop to locally enhance BMP activity, and show that it is required for neural crest fate. We further demonstrate that the Distal-less transcription factors Dlx3b and Dlx4b, which are expressed in the preplacodal ectoderm, are required for the expression of a cell-autonomous BMP inhibitor, Bambi-b, which can explain the specific absence of BMP activity in the preplacodal ectoderm. Taken together, our data define a BMP regulatory network that controls cell fate decisions at the neural plate border.