The lateral line organ in fish and amphibians transforms fluid motion in the animal's surroundings into a representation of its hydrodynamic environment. This sense is involved in complex behaviors, ranging from rheotaxis to schooling. The primary sensory neurons are hair cells, each of which can tonically transmit a graded ‘analog' signal to afferent neurons, via highly specialized ‘ribbon' synapses. Many questions about this first step in sensory coding remain to be answered. For example: What is the relationship between the biologically relevant stimulus and hair cell output? How do the synaptic properties of different hair cells contribute to the signal that is sent to the brain? And how are these signals modulated by top-down (efferent) projections? The first chapter of this thesis describes a newly established preparation including an overview of transgenic fish lines, some of which were newly generated, to study the processing of mechanical information in larval zebrafish at various stages, from the periphery to the hindbrain. The second chapter contains a detailed characterization of the relationship between cupula deflection and hair-cell glutamate release. We show that the population of hair cells in the lateral line is highly heterogeneous in terms of their sensitivity, dynamic range and adaptive properties and that this heterogeneity has functional implications for downstream processing. These results are unique because of how well the biophysical, anatomical and physiological context of the actual sensory transduction is maintained. The third chapter describes the effects of (fictive) locomotion on the processing of mechanical information. We show that an efferent signal, which is highly correlated with motor neuron activity, is present in the neuromast and leads to a strong suppression of mechanically induced activity of afferent neurons. This efference copy appears to selectively reduce the gain to hair cells sensitive to posterior cupula deflections.