The thymus and parathyroid glands are derived from the third pharyngeal pouch endoderm. The mechanisms that establish distinct molecular domains in the third pouch and control the subsequent separation of these organ primordia from the pharynx are poorly understood. Here, we report that mouse embryos that lack two FGF feedback antagonists, Spry1 and Spry2, display parathyroid and thymus hypoplasia and a failure of these organ primordia to completely separate from the pharynx. We show that FGF ligands and downstream reporter genes are expressed in highly regionalised patterns in the third pouch and that sprouty gene deletion results in upregulated FGF signalling throughout the pouch endoderm. As a consequence, the initiation of markers of parathyroid and thymus fate is altered. In addition, a normal apoptotic programme that is associated with the separation of the primordia from the pharynx is disrupted, resulting in the maintenance of a thymus-pharynx attachment and a subsequent inability of the thymus to migrate to its appropriate position above the heart. We demonstrate that the sprouty genes function in the pharyngeal endoderm itself to control these processes and that the defects in sprouty-deficient mutants are, at least in part, due to hyper-responsiveness to Fgf8. Finally, we provide evidence to suggest that parathyroid hypoplasia in these mutants is due to early gene expression defects in the third pouch, whereas thymus hypoplasia is caused by reduced proliferation of thymic epithelial cells in the thymus primordium.