We use the transparency of zebrafish embryos to reveal the de novo generation of a simple squamous epithelium and identify the cellular architecture in the epithelial transition zone that ties this squamous epithelium to the columnar neuroepithelium within the embryo's brain. The simple squamous epithelium of the rhombencephalic roof plate is pioneered by distinct mesenchymal cells at the dorsal midline of the neural tube. Subsequently, a progenitor zone is established at the interface between columnar epithelium of the rhombic lip and the expanding squamous epithelium of the roof plate. Surprisingly, this interface consists of a single progenitor cell type that we have named the veil cell. Veil cells express gdf6a and constitute a lineage restricted stem zone that generates the squamous roof plate by direct transformation and asymmetrically fated divisions. Experimental restriction of roof plate expansion leads to extrusion of veil cell daughters and squamous cells, suggesting veil cell fate is regulated by the space available for roof plate growth.