The transition from fins to limbs was an important terrestrial adaptation, but how this crucial evolutionary shift arose developmentally is unknown. Current models focus on the distinct roles of the apical ectodermal ridge (AER) and the signalling molecules that it secretes during limb and fin outgrowth. In contrast to the limb AER, the AER of the fin rapidly transitions into the apical fold and in the process shuts off AER-derived signals that stimulate proliferation of the precursors of the appendicular skeleton. The differing fates of the AER during fish and tetrapod development have led to the speculation that fin-fold formation was one of the evolutionary hurdles to the AER-dependent expansion of the fin mesenchyme required to generate the increased appendicular structure evident within limbs. Consequently, a heterochronic shift in the AER-to-apical-fold transition has been postulated to be crucial for limb evolution. The ability to test this model has been hampered by a lack of understanding of the mechanisms controlling apical fold induction. Here we show that invasion by cells of a newly identified somite-derived lineage into the AER in zebrafish regulates apical fold induction. Ablation of these cells inhibits apical fold formation, prolongs AER activity and increases the amount of fin bud mesenchyme, suggesting that these cells could provide the timing mechanism proposed in Thorogood's clock model of the fin-to-limb transition. We further demonstrate that apical-fold-inducing cells are progressively lost during gnathostome evolution; the absence of such cells within the tetrapod limb suggests that their loss may have been a necessary prelude to the attainment of limb-like structures in Devonian sarcopterygian fish.