Regeneration-competent species possess the ability to reverse the progression of severe diseases by restoring the function of the damaged tissue. However, the cellular dynamics underlying this capability remain unexplored. Here, we use single- cell transcriptomics to map the cellular dynamics underlying de novo β-cell regeneration during induction and recovery from diabetes in zebrafish. We show that the zebrafish has evolved two distinct types of somatostatin-producing δ-cells, which we term δ1- and δ2-cells. Moreover, we characterize a small population of glucose-responsive islet cells, which share the hormones and fate-determinants of both β- and δ1-cells. The transcriptomic analysis of β-cell regeneration reveals that the development of β/δ hybrids constitutes a prominent source of insulin-expression during diabetes recovery. Using in vivo calcium imaging and cell tracking, we further show that the hybrid cells form de novo upon β-cell loss and acquire glucose- responsiveness in the course of regeneration. The overexpression of dkk3, a gene enriched in hybrid cells, increases their formation in the absence of β-cell injury. Our data provide an atlas of β-cell regeneration and indicate that the rapid formation of glucose-responsive hybrid cells contributes to the resolution of diabetes in zebrafish.