Pancreatic islets play an essential role in regulating blood glucose level. Although the molecular pathways underlying islet cell differentiation are beginning to be resolved, the cellular basis of islet morphogenesis and fate allocation remain unclear. By combining unbiased and targeted lineage tracing, we address the events leading to islet formation in the mouse. From the statistical analysis of clones induced at multiple embryonic timepoints, here we show that, during the secondary transition, islet formation involves the aggregation of multiple equipotent endocrine progenitors that transition from a phase of stochastic amplification by cell division into a phase of sublineage restriction and limited islet fission. Together, these results explain quantitatively the heterogeneous size distribution and degree of polyclonality of maturing islets, as well as dispersion of progenitors within and between islets. Further, our results show that, during the secondary transition, α- and β-cells are generated in a contemporary manner. Together, these findings provide insight into the cellular basis of islet development.