The YABBY (YAB) genes specify abaxial cell fate in lateral organs in Arabidopsis. Loss-of-function mutants in two early-expressing YAB genes, FILAMENTOUS FLOWER (FIL) and YAB3, do not exhibit vegetative phenotypes as a result of redundancy. Mutations in these genes result in the derepression of the KNOX homeobox genes SHOOTMERISTEMLESS (STM), BREVIPEDICELLUS, and KNAT2 in the leaves and in the partial rescue of stm mutants. Here, we show that fil yab3 double mutants exhibit ectopic meristem formation on the adaxial surfaces of cotyledons and leaf blades. We propose that in addition to abaxial specification, lateral organ development requires YAB function to downregulate KNOTTED homeobox genes so that meristem initiation and growth are restricted to the apex.