The spine is a segmented axial structure made of alternating vertebral bodies (centra) and intervertebral discs (IVDs) assembled around the notochord. Here, we show that, prior to centra formation, the outer epithelial cell layer of the zebrafish notochord, the sheath, segments into alternating domains corresponding to the prospective centra and IVD areas. This process occurs sequentially in an anteroposterior direction via the activation of Notch signaling in alternating segments of the sheath, which transition from cartilaginous to mineralizing domains. Subsequently, osteoblasts are recruited to the mineralized domains of the notochord sheath to form mature centra. Tissue-specific manipulation of Notch signaling in sheath cells produces notochord segmentation defects that are mirrored in the spine. Together, our findings demonstrate that notochord sheath segmentation provides a template for vertebral patterning in the zebrafish spine.