Embryos that are homozygous for Splotch, a null allele of Pax3, have a severe neural crest cell (NCC) deficiency that generates a complex phenotype including spina bifida, exencephaly and cardiac outflow tract abnormalities. Contrary to the widely held perception that thymus aplasia or hypoplasia is a characteristic feature of Pax3^Sp/Sp embryos, we find that thymic rudiments are larger and parathyroid rudiments are smaller in E11.5–12.5 Pax3^Sp/Sp compared to Pax3^+/+ embryos. The thymus originates from bilateral third pharyngeal pouch primordia containing endodermal progenitors of both thymus and parathyroid glands. Analyses of Foxn1 and Gcm2 expression revealed a dorsal shift in the border between parathyroid- and thymus-fated domains at E11.5, with no change in the overall cellularity or volume of each shared primordium. The border shift increases the allocation of third pouch progenitors to the thymus domain and correspondingly decreases allocation to the parathyroid domain. Initial patterning in the E10.5 pouch was normal suggesting that the observed change in the location of the organ domain interface arises during border refinement between E10.5 and E11.5. Given the well-characterized NCC defects in Splotch mutants, these findings implicate NCCs in regulating patterning of third pouch endoderm into thymus- versus parathyroid-specified domains, and suggest that organ size is determined in part by the number of progenitor cells specified to a given fate.