Vision is likely our most prominent sense and a correct development of the eye is at its basis. Early eye development is tightly connected to the development of the forebrain. A single eye field and the prospective telencephalon are situated within the anterior neural plate (ANP). During normal development, both domains are split and consecutively, two optic vesicles and two telencephalic lobes emerge. If this process is hampered, the domains remain condensed at the midline. The resulting developmental disorder is termed holoprosencephaly (HPE). The typical ocular finding associated with intense forms of HPE is cyclopia. However, also anophthalmia and coloboma can be associated with HPE. Here, we report that a correct balance of Bone morphogenetic proteins (BMPs) and their antagonists are important for forebrain and eye field cleavage. Experimental induction of a BMP ligand results in a severe form of HPE showing anophthalmia. We identified a dysmorphic forebrain containing retinal progenitors, which we termed crypt-oculoid. Optic vesicle evagination is impaired due to a loss ofrx3and, consecutively, ofcxcr4a. Our data further suggest that the subduction of prospective hypothalamic cells during neurulation and neural keel formation is affected by the induction of a BMP ligand.