The transplantation of insulin-producing pancreatic β-cells holds great hope for treating type I diabetes. Supplies of these cells are limited,but a report by Stafford and co-workers that retinoic acid (RA) signalling from the mesoderm directly induces insulin-expressing β-cells in zebrafish endoderm advances the prospect of converting stem cells intoβ-cells for transplantation (see p. 949). The pancreas develops from the endoderm in response to RA synthesized by adjacent mesoderm,but whether RA signals directly or indirectly to the endoderm has been unclear. The researchers used cell transplantation to show that RA synthesis and RA receptor expression in the anterior paraxial mesoderm and endoderm,respectively, but not in other tissues, are required for the development of insulin-expressing β-cells. Furthermore, the activation of RA signal transduction in the endoderm alone induces insulin expression. Together, these results indicate that mesodermally derived RA is an instructive signal that directly induces pancreatic precursors. Thus, RA could be used to induce stem cells to differentiate into β-cells for therapeutic purposes.