Zebrafish mutants with increased retinoic acid (RA) signaling due to the loss of the RA-inactivating enzyme Cyp26b1 develop a hyper-mineralized spine with gradually fusing vertebral body precursors (centra). However, the underlying cellular mechanisms remained incompletely understood. Here, we show that cells of the notochord epithelium named chordoblasts are sensitive to RA signaling. Chordoblasts are uniformly distributed along the anteroposterior axis and initially generate the continuous collagenous notochord sheath. However, subsequently and iteratively subsets of these cells undergo further RA-dependent differentiation steps, acquire a stellate-like shape, down-regulate collagen 2a1a gene expression, switch on cyp26b1 expression and trigger metameric sheath mineralization. This mineralization fails to appear upon chordoblast-specific cell ablation or RA signal transduction blockade. Together, our data reveal that despite their different developmental origins, chordoblasts display activities and are regulated very similar to osteoblasts, including their RA-induced transitioning from osteoid-producing cells to osteoid-mineralizing ones. Furthermore, our data point to a requirement for locally controlled RA activity within the chordoblast layer in order to generate the segmented vertebral column.