The identification of secreted factors that can selectively stimulate the generation of insulin producing beta-cells from stem and/or progenitor cells represent a significant step in the development of stem cell-based beta-cell replacement therapy. By elucidating the molecular mechanisms that regulate the generation of beta-cells during normal pancreatic development such putative factors may be identified. In the mouse, beta-cells increase markedly in numbers from embryonic day (e) 14.5 and onwards, but the extra-cellular signal(s) that promotes the selective generation of beta-cells at these stages remains to be identified. Here we show that the retinoic acid (RA) synthesizing enzyme Raldh1 is expressed in developing mouse and human pancreas at stages when beta-cells are generated. We also provide evidence that RA induces the generation of Ngn3(+) endocrine progenitor cells and stimulates their further differentiation into beta-cells by activating a program of cell differentiation that recapitulates the normal temporal program of beta-cell differentiation.