Aldh1 expression is known to mark candidate progenitor populations in adult and embryonic mouse pancreas, and Aldh1 enzymatic activity has been identified as a potent regulator of pancreatic endocrine differentiation in zebrafish. However, the location and identity of Aldh1-expressing cells in zebrafish pancreas remain unknown. In this study we demonstrate that Aldh1-expressing cells are located immediately adjacent to 2F11-positive pancreatic ductal epithelial cells, and that their abundance dramatically increases during zebrafish secondary islet formation. These cells also express neurod, a marker of endocrine progenitor cells, but do not express markers of more mature endocrine cells such as pax6b or insulin. Using formal cre/lox-based lineage tracing, we further show that Aldh1-expressing pancreatic epithelial cells are the direct progeny of pancreatic notch-responsive progenitor cells, identifying them as a critical intermediate between multi-lineage progenitors and mature endocrine cells. Pharmacologic manipulation of Aldh1 enzymatic activity accelerates cell entry into the Aldh1-expressing endocrine progenitor pool, and also leads to the premature maturation of these cells, as evidenced by accelerated pax6b expression. Together, these findings suggest that Aldh1-expressing cells act as both participants and regulators of endocrine differentiation during zebrafish secondary islet formation.