Branchial arch development involves dynamic interactions between neural crest cells as well as ectodermal, endodermal and mesodermal cell populations. Despite their importance and evolutionary conservation, the intercellular interactions guiding the early development of the branchial arches are still poorly understood. We have here studied fibroblast growth factor (FGF) signalling in early pharyngeal development. In mice homozygous for a hypomorphic allele of Fgfr1, neural crest cells migrating from the hindbrain mostly fail to enter the second branchial arch. This defect is non-cell-autonomous suggesting that Fgfr1 provides a permissive environment for neural crest cell migration. Here we demonstrate localized down-regulation of the expression of the FGF responsive gene, Sprouty1 in the epithelium covering the presumptive second branchial arch of hypomorphic Fgfr1 mutants. This appears to result in a failure to establish an ectodermal signalling center expressing Fgf3 and Fgf15. We also studied differentiation of the ectoderm in the second branchial arch region. Development of the geniculate placode as well as the VIIth cranial ganglion is affected in Fgfr1 hypomorphs. Our results suggest that Fgfr1 is important for localized signalling in the pharyngeal ectoderm and consequently for normal tissue interactions in the developing second branchial arch.