Aldehyde dehydrogenase 1 (ALDH1), a human stem-cell marker, is an enzyme responsible for converting retinaldehydes to retinoic acids (RAs) to modulate cell differentiation. However, data on expression levels and functional roles of ALDH1 during human fetal pancreatic development are limited. The focus of this study was to characterise ALDH1 expression patterns and to determine its functional role in islet cell differentiation. The presence of ALDH1 in the human fetal pancreas (8-22weeks) was characterised by microarray, quantitative RT-PCR, western blotting and immunohistological approaches. Isolated human fetal islet-epithelial cell clusters were treated with ALDH1 inhibitors, retinoic acid receptor (RAR) agonists and ALDH1A1 small interfering (si)RNA. In the developing human pancreatic cells, high ALDH1 activity frequently co-localised with key stem-cell markers as well as endocrine transcription factors. A high level of ALDH1 was expressed in newly differentiated insulin(+) cells and this decreased as development progressed. Pharmacological inhibition of ALDH1 activity in human fetal islet-epithelial cell clusters resulted in reduced endocrine cell differentiation and increased cell apoptosis, and was reversed with co-treatment of RAR/RXR agonists. Furthermore, siRNA knockdown of ALDH1A1 significantly decreased RAR expression and induced cell apoptosis via suppression of the phosphoinositide 3-kinase (PI3K) pathway and activation of caspase signals. Our findings indicate that ALDH1(+) cells represent a pool of endocrine precursors in the developing human pancreas and that ALDH1 activity is required during endocrine cell differentiation. Inhibition of ALDH1-mediated retinoid signalling impairs human fetal islet cell differentiation and survival.