Because head regeneration occurs in nerve-free hydra mutants, neurogenesis was regarded as dispensable for this process. Here, in wild-type hydra, we tested the function of the ParaHox gsx homolog gene, cnox-2, which is a specific marker for bipotent neuronal progenitors, expressed in cycling interstitial cells that give rise to apical neurons and gastric nematoblasts (i.e. sensory mechanoreceptor precursors). cnox-2 RNAi silencing leads to a dramatic downregulation of hyZic, prdl-a, gsc and cnASH, whereas hyCOUP-TF is upregulated. cnox-2 indeed acts as an upstream regulator of the neuronal and nematocyte differentiation pathways, as cnox-2(-) hydra display a drastic reduction in apical neurons and gastric nematoblasts, a disorganized apical nervous system and a decreased body size. During head regeneration, the locally restricted de novo neurogenesis that precedes head formation is cnox-2 dependent: cnox-2 expression is induced in neuronal precursors and differentiating neurons that appear in the regenerating tip; cnox-2 RNAi silencing reduces this de novo neurogenesis and delays head formation. Similarly, the disappearance of cnox-2(+) cells in sf-1 mutants also correlates with head regeneration blockade. Hence in wild-type hydra, head regeneration requires the cnox-2 neurogenic function. When neurogenesis is missing, an alternative, slower and less efficient, head developmental program is possibly activated.