INSM1 is a zinc-finger protein expressed throughout the developing nervous system in late neuronal progenitors and nascent neurons. In the embryonic cortex and olfactory epithelium, Insm1 may promote the transition of progenitors from apical, proliferative, and uncommitted to basal, terminally-dividing and neuron producing. In the otocyst, delaminating and delaminated progenitors express Insm1, whereas apically-dividing progenitors do not. This expression pattern is analogous to that in embryonic olfactory epithelium and cortex (basal/subventricular progenitors). Lineage analysis confirms that auditory and vestibular neurons originate from Insm1-expressing cells. In the absence of Insm1, otic ganglia are smaller, with 40% fewer neurons. Accounting for the decrease in neurons, delaminated progenitors undergo fewer mitoses, but there is no change in apoptosis. We conclude that in the embryonic inner ear, Insm1 promotes proliferation of delaminated neuronal progenitors and hence the production of neurons, a similar function to that in other embryonic neural epithelia. Unexpectedly, we also found that differentiating, but not mature, outer hair cells express Insm1, whereas inner hair cells do not. Insm1 is the earliest known gene expressed in outer versus inner hair cells, demonstrating that nascent outer hair cells initiate a unique differentiation program in the embryo, much earlier than previously believed.