The islet of Langerhans is a unique micro-organ within the exocrine pancreas, which is composed of insulin-secreting beta-cells, glucagon-secreting alpha-cells, somatostatin-secreting delta-cells, pancreatic polypeptide-secreting PP cells and ghrelin-secreting epsilon-cells. Islets also contain non-endocrine cell types such as endothelial cells. However, the mechanism(s) of islet formation is poorly understood due to technical difficulties in capturing this dynamic event in situ. We have developed a method to monitor beta-cell proliferation and islet formation in the intact pancreas using transgenic mice in which the beta-cells are specifically tagged with a fluorescent protein. Endocrine cells proliferate contiguously, forming branched cord-like structures in both embryos and neonates. Our study has revealed long stretches of interconnected islets located along large blood vessels in the neonatal pancreas. Alpha-cells span the elongated islet-like structures, which we hypothesize represent sites of fission and facilitate the eventual formation of discrete islets. We propose that islet formation occurs by a process of fission following contiguous endocrine cell proliferation, rather than by local aggregation or fusion of isolated beta-cells and islets. Mathematical modeling of the fission process in the neonatal islet formation is also presented.