Precise control of lineage segregation is critical for the development of multicellular organisms, but our quantitative understanding of how variable signaling inputs are integrated to activate lineage-specific gene programs remains limited. Here, we show how precisely two out of eight ectoderm cells adopt neural fates in response to ephrin and FGF signals during ascidian neural induction. In each ectoderm cell, FGF signals activate ERK to a level that mirrors its cell contact surface with FGF-expressing mesendoderm cells. This gradual interpretation of FGF inputs is followed by a bimodal transcriptional response of the immediate early gene, Otx, resulting in its activation specifically in the neural precursors. At low levels of ERK, Otx is repressed by an ETS family transcriptional repressor, ERF2. Ephrin signals are critical for dampening ERK activation levels across ectoderm cells so that only neural precursors exhibit above-threshold levels, evade ERF repression, and “switch on” Otx transcription.