All cranial placode progenitors arise from a common precursor field anterior to the neural plate, the pre-placodal region (PPR). We showed that transcription factor Zic1, expressed at the anterior neural plate, is necessary and sufficient to promote placode fate. Here we reveal a non-cell autonomous activity of Zic1 and implicate retinoic acid (RA) signaling as a key player in cranial placode progenitor specification. In a screen for genes activated by Zic1 we identify several factors involved in RA metabolism and function. Among them we show that retinaldehyde dehydrogenase 2 (RALDH2) and lipocalin-type prostaglandin D2 synthase (LPGDS), which respectively regulate the synthesis and transport of RA, directly participate in the establishment of the PPR. We propose that RALDH2 and LPGDS induction by Zic1 at the anterior neural plate allows for the localized production and transport of RA, which in turn activates a cranial placode developmental program in neighboring cells.