The mechanisms that establish behavioral, cognitive, and neuroanatomical asymmetries are poorly understood. In this study, we analyze the events that regulate development of asymmetric nuclei in the dorsal forebrain. The unilateral parapineal organ has a bilateral origin, and some parapineal precursors migrate across the midline to form this left-sided nucleus. The parapineal subsequently innervates the left habenula, which derives from ventral epithalamic cells adjacent to the parapineal precursors. Ablation of cells in the left ventral epithalamus can reverse laterality in wild-type embryos and impose the direction of CNS asymmetry in embryos in which laterality is usually randomized. Unilateral modulation of Nodal activity by Lefty1 can also impose the direction of CNS laterality in embryos with bilateral expression of Nodal pathway genes. From these data, we propose that laterality is determined by a competitive interaction between the left and right epithalamus and that Nodal signaling biases the outcome of this competition.