The histone demethylase LSD1 plays a pivotal role in cellular differentiation, particularly in silencing lineage-specific genes. However, little is known about how LSD1 regulates neurosensory differentiation in the inner ear. Here we show that LSD1 interacts directly with the transcription factor Pax2 to form the NuRD co-repressor complex at the Pax2 target gene loci in a mouse otic neuronal progenitor cell line (VOT-N33). VOT-N33 cells expressing a Pax2-response element reporter were GFP-negative when untreated, but became GFP positive after forced differentiation or treatment with a potent LSD inhibitor. Pharmacological inhibition of LSD1 activity resulted in the enrichment of mono- and di-methylation of H3K4, upregulation of sensory neuronal genes and an increase in the number of sensory neurons in mouse inner ear organoids. Together, these results identify the LSD1/NuRD complex as a previously unrecognized modulator for Pax2-mediated neuronal differentiation in the inner ear.