In vertebrates, the paired‐box transcription factor Pax‐2 is one of the earliest markers of the developing inner ear and is robustly expressed in the otic placode and the otic vesicle. Mutations in the Pax‐2 gene result in developmental defects of the vestibular and auditory apparatus. We set out to investigate whether regions of Pax‐2 expression in the developing otic vesicle correlate with areas of cell proliferation or cell death, which would indicate a possible role of Pax‐2 in these processes. Regionalized proliferation and local apoptosis are the principal mechanisms that lead to the complex morphogenesis of the highly compartmentalized inner ear starting from a simple vesicle. We found a high correlation of Pax‐2 expression with proliferating cells in the walls of the early otic vesicle. Apoptotic cells were mostly localized outside of the Pax‐2‐expressing regions. At later stages, we found the highest intensity of proliferating and Pax‐2‐positive cells in areas of the developing sensory epithelia. When hair cells begin to differentiate, they maintain a lower level of Pax‐2 expression than neighboring cells for a brief period, before they completely down‐regulate expression of this transcription factor. We conclude that a significant proportion of proliferating cells in the developing otocyst express Pax‐2, in particular in regions that include developing sensory patches. This implicates Pax‐2 as a marker for proliferating hair and supporting cell progenitors. Furthermore, the likelihood that Pax‐2‐expressing cells in the otocyst die by apoptosis is much lower when compared with cells residing in Pax‐2‐negative regions. © 2004 Wiley Periodicals, Inc. J Neurobiol 60: 61–70, 2004