The inner ear and epibranchial ganglia of vertebrates arise from a shared progenitor domain that is induced by FGF signalling, the posterior placodal area (PPA), before being segregated by Wnt signalling. One of the first genes activated in the PPA is the transcription factor Pax2. Loss-of- and gain-of function studies have defined a role for Pax2 in placodal morphogenesis and later inner ear development, but have not addressed the role Pax2 plays during the formation and maintenance of the PPA. To understand the role of Pax2 during the development of the PPA, we used over-expression and repression of Pax2. Both gave rise to a smaller otocyst and repressed the formation of epibranchial placodes. In addition, cell cycle analysis revealed that Pax2 suppression reduced proliferation of the PPA. Our results suggest that Pax2 functions in the maintenance but not the induction of the PPA. One role of Pax2 is to maintain proper cell cycle proliferation in the PPA.