Dlx5, a homeobox transcription factor, plays a key role in the development of many organ systems. It is a candidate gene for human split-hand/split-foot type 1 malformation associated with sensorineural hearing loss. A deletion of one of its enhancers has been implicated in human craniofacial defects/hearing loss and it has also been associated with autism. However, little is known of how Dlx5 exerts its regulatory effects. We identified direct targets of Dlx5 in the mouse inner ear by gene expression profiling wild-type and Dlx5 null otic vesicles from embryonic stages E10 and E10.5. Four hundred genes were differentially expressed. We examined the genomic DNA sequences in the promoter regions of these genes for (i) previously described Dlx5 binding sites, (ii) novel 12 bp long motifs with a canonical homeodomain element shared by two or more genes and (iii) 100% conservation of these motifs in promoters of human orthologs. Forty genes passed these filters, 12 of which are expressed in the otic vesicle in domains that overlap with Dlx5. Chromatin immunoprecipitation using a Dlx5 antibody confirmed direct binding of Dlx5 to promoters of seven of these (Atbf1, Bmper, Large, Lrrtm1, Msx1, Ebf1 and Lhx1) in a cell line over-expressing Dlx5. Bmper and Lrrtm1 were upregulated in this cell line, further supporting their identification as targets of Dlx5 in the inner ear and potentially in other organs. These direct targets support a model in which Bmp signaling is downstream of Dlx5 in the early inner ear and provide new insights into how the Dlx5 regulatory cascade is initiated.