Hair cells of the mammalian ear are responsible for the mechano-electrical transduction of sounds into electrical signals. They detect minute sound-induced vibrations of the cochlear partition via the displacement of their sensory hair bundles. Bundle displacements in the order of a few nanometers regulate ionic current through mechanically-gated channels located at the tips of the hairs (stereocilia). While inner hair cells (IHCs) are primarily responsible for relaying acoustic information to the central nervous system via afferent auditory nerve fibres, outer hair cells (OHCs) enhance the sensitivity and frequency selectivity of the cochlea by active mechanical amplification. Within the cochlea, hair cells are tonotopically organized such that mammals can perceive a wide range of sound frequencies. Moreover, IHCs are adapted for fast synaptic transmission through the development of specialized ribbon synapses, which are essential for encoding sound with accurate temporal precision. Such signalling fidelity is beyond the capabilities of most conventional synapses. The complexity of hair cell physiology, which varies as a function of cell type and location along the cochlea, requires them to mature through an extremely ordered progression of electrophysiological and morphological changes. In most altricial rodents these changes occur over a period of three weeks from terminal mitosis at embryonic day 12-14 up to the onset of hearing at postnatal day 12 (P12). There are several critical check points on the way. Using various animal models, including mutant and knockout mice, we have identified several molecular mechanisms that are important for these check points. The physiological differentiation of IHCs and OHCs depends on an intrinsic genetic programme coordinated by microRNA-96. In the absence of microRNA-96 hair cell differentiation is arrested at around birth in mice. In addition to microRNA-96, we discovered that the actin-binding protein Eps8 is required for several apparently unrelated aspects of IHC postnatal maturation. Although much of the development of hair cells depends on intrinsic genetic programmes, functional processes also shape the progress to maturity. This applies to the action potential activity that occurs during a critical period of differentiation. We found that action potentials are intrinsically generated by immature IHCs and that apical cells exhibit bursting activity as opposed to more sustained firing in basal cells. This difference in firing pattern along the cochlea could instruct the tonotopic differentiation of IHCs. The activity also influences the linearization of the exocytotic calcium dependence of the synaptic machinery in high-frequency post-hearing IHCs, which does not occur when the normal pattern of action potential activity is disrupted. We have recently demonstrated that this linearization depends on the expression of the synaptic protein synaptotagmin IV in adult IHCs. The final stage of IHC maturation includes a switch from Ca2+-dependent action potentials (APs) to graded receptor potentials driven by hair bundle displacement after P12. This switch is associated with a complete change in the IHC’s complement of ion channels, their synaptic biophysics and the reorganization of synaptic connections from and to IHCs. The above findings have allowed us to identify key molecules involved in the development of mammalian auditory hair cells and also to elucidate, at least in part, crucial physiological mechanisms that regulate hair cell differentiation.