Gemara

(R. Yehoshua ben Levi): David wore a special crown in the place of Tefilin, and it fit.

Question: He must wear Tefilin there!

Answer (Rav Shmuel bar Rav Yitzchak): There is space on the head for two Tefilin.

Menachos 35b (Rav Yehudah): The knot must be high, for a sign that Yisrael will be supreme, and not below. It must be opposite the face, for a sign that Yisrael will be in front, and not in back.

37a (Tana d'Vei Menasheh): "Bein Einecha" refers to the Kodkod (top of the head).

Question: Where on the Kodkod are Tefilin worn?

Answer (d'Vei R. Yanai): It is the part of the head that is soft in a baby.

37b (Beraisa): Head Tefilin is worn near the top of the head.

Question: What is the source of this?

Answer (Beraisa): "Bein Einecha" is (near) the top of the head.

Suggestion: Perhaps it is literally between the eyes!

Rejection: It also says "Lo Sasimu Karachah Bein Einechem la'Mes" - just like Karachah (the Isur to tear out hair) applies on top of the head (where hair grows), also the Mitzvah of Tefilin.

R. Yehudah says, just like the hand Tefilin is (on the flesh) in a place where only one kind of hair (i.e. white) makes a Metzora totally Tamei, also the Shel Rosh. This cannot be between the eyes, for yellow hairs are Metamei in the eyebrows, and white hairs are Metamei in the rest of the area.

Rishonim

Rambam (Hilchos Tefilin 4:1): We wear head Tefilin on the Kodkod, which is the end of the hair opposite the face. This is where a baby's head is soft. One must wear them in the middle, so it will be in between the eyes, and the knot will be at the top of the Oref, which is the end of the spine.

Rosh (Hilchos Tefilin (after Menachos) 19): We said that Tefilin are worn in the part of the head that is soft in a baby. It does not mean that Tefilin are worn only there. Rather, the place is until the place that is soft in a baby.

Beis Yosef (OC 27 DH u'Makom): Also the Yerushalmi, Mordechai and Sefer ha'Terumah say so. However, the Rambam holds that at the roots of the hair, a baby's head is soft. Perhaps he understands the Gemara to mean that there is room on the head for two pairs of Tefilin, not one above the other, rather, side by side, even with between the eyes. Alternatively, they are one above the other. The place where a baby's head is soft is long enough for two Tefilin. It is better to say so, for then l'Halachah the Rambam does not argue with the Rosh and Sefer ha'Terumah.

Note: How could anyone say that there is not room one above the other? The Gemara said that since there is room for two Tefilin there, there was room to wear a crown and Tefilin at the same time!

Poskim

Shulchan Aruch (OC 27:9): The place for the head Tefilin is from the beginning of the roots of the hair from the forehead until the end of the place where a baby's head is soft.

Gra (25): Tefilin are worn in the place that is soft in a baby, and all the more so below, for this fulfills "between your eyes" even better. The Yerushalmi says that one need not wear Tefilin in the same place every day. One may wear it (anywhere from the beginning of the hair) until where a baby's head is soft.

Taz (10): Many err to say that the top Ketzei (end of the Tefilin) should be in the place of hair, and the primary part of the Tefilin is on the forehead. They transgress an Isur Torah, for Tefilin must be where Karachah applies, i.e. the bottom Ketzei should be in the place of hair.

Kaf ha'Chayim (38): Beis Yakov (131 or 135) disagrees; rather, the base of the Tefilin should be in the place of hair, and not only the Ketzitzah (box). Ma'amar Mordechai, the Pri Megadim and Eliyahu Rabah say that also the Taz means so. (I.e. 'Ketzei' includes the end of the base, not only the Ketzitzah - PF.) The Shlah says that a little hair should be visible underneath. If one's hair fell out, he wears Tefilin where his hair used to be.

Mishnah Berurah (33): One ignores long hairs that reach to the middle of the forehead. The place for Tefilin begins at the roots of the hairs on the forehead and above. It is better to wear Tefilin slightly above this, for (this is Kosher, for) there is room for two Tefilin, and lest (if he does not,) the Tefilin slip down onto the forehead. Putting on the forehead is the custom of Kara'im (who deny oral Torah). One who does so does not fulfill the Mitzvah. Every Ba'al Nefesh should warn his friends and teach them lest they stumble in this, lest they be sinners with their bodies, i.e. a head that did not wear Tefilin. Also the Berachah is Levatalah, for Tefilin in the wrong place are as if there in the bag. If they left their place, one must immediately return them. See 25:12 regarding whether one blesses again.

Note: Seemingly, it is a Safek Berachah Levatalah, for some Poskim say that even one who wears only the hand Tefilin says both Berachos (Mishnah Berurah 26:3). I do not understand why Kaf ha'Chayim (27:40) discusses a Berachah Levatalah, for Sefardim say only one Berachah whether they wear both Tefilin or only one (26:1)!

Mishnah Berurah (25:44,45): If the Tefilin only partially left its place, one does not bless. If it totally left, the Rema brings two opinions. It is best to minimize Berachos (and not bless again).

Mishnah Berurah (27:34): The top of the Tefilin may not be above where a baby's head is soft.

Kaf ha'Chayim (40): Some wear the Tefilin partially on the forehead. If one rebukes them, they move it higher, but this does not help, for it falls down again. The straps must be adjusted. People must be informed of the severity of this. The Chacham of the city should send messengers to ensure that people's Tefilin are in the right place.

Kaf ha'Chayim (41): The place extends four or five fingers, but surely not six (for then there would be room for three Tefilin). One who wears Rashi and R. Tam Tefilin together must ensure that the Tefilin, including the base, is not more than two fingers wide, lest the R. Tam Tefilin need to rest on the base of the Rashi Tefilin.

Shulchan Aruch (10): The knot must be in back of the head, above in the Oref (back of the neck). One must align the box to be in the middle, so it will be in line with between the eyes. Also the knot must be in the middle of the Oref. It should not lean to either side.

Beis Yosef (DH v'Tzarich): Rashi says that the knot must be at the height of the head, and not on the neck. Rashi and the Rosh say that It must be opposite the face, and not to the side of the head. The Agur and R.Elyakim say that it should not be in line with the Oref, rather, to one side. This is not the custom.

Magen Avraham (15): Chulin 19b says that the Oref is opposite the face.

Mishnah Berurah (35): It is good for the primary part of the knot to be above the cavity (at the top of the spine). One must be careful that none of the knot be in the place empty of hair, for that is called Mafrekes (the neckbone), not Oref. The strap must be the precise size and fit well around his head. If it is too big, it is not taut; it says "u'Kshartam", i.e. tight-fitting. Also, if it is loose, the Tefilin will fall onto the forehead, or the knot will fall below onto the neck, in an improper place.

Mishnah Berurah (36): Many say that if the knot was to the side, he did not fulfill the Mitzvah. One must be careful about this, and also that the Tefilin not be too big, for then it is almost impossible that they be tight on the head and in the right place.

Kaf ha'Chayim (43,44): Chesed la'Alafim says that the knot must be on the cavity, i.e. above the cavity. The entire knot must be where hairs sprout on the Oref.

Kaf ha'Chayim (45): One who wears a hat should remove it when wearing Tefilin, for the hat is prone to push the box onto the forehead or the knot below the proper place.