Determination of cell fate within the prosensory domain of the developing cochlear duct relies on the temporal and spatial regulation of the bHLH transcription factor Atoh1. Auditory hair cells and supporting cells arise in a wave of differentiation that patterns them into discrete rows mediated by Notch-dependent lateral inhibition. However, the mechanism responsible for selecting sensory cells from within the prosensory competence domain remains poorly understood. We show in mice that rather than being upregulated in rows of cells, Atoh1 is subject to transcriptional activation in groups of prosensory cells, and that highly conserved sites for Hes/Hey repressor binding in the Atoh1 promoter are needed to select the hair cell and supporting cell fate. During perinatal supporting cell transdifferentiation, which is a model of hair cell regeneration, we show that derepression is sufficient to induce Atoh1 expression, suggesting a mechanism for priming the 3′ Atoh1 autoregulatory enhancer needed for hair cell expression.