The heart’s rhythm is initiated and regulated by a group of specialized cells in the sinoatrial node (SAN), the primary pacemaker of the heart. Abnormalities in the development of the SAN can result in irregular heart rates (arrhythmias). Although several of the critical genes important for SAN formation have been identified, our understanding of the transcriptional network controlling SAN development remains at a relatively early stage. The homeodomain transcription factor Shox2 is involved in the specification and patterning of the SAN. While the Shox2 knockout in mice results in embryonic lethality due to severe cardiac defects including improper SAN development, Shox2 knockdown in zebrafish causes a reduced heart rate (bradycardia). In order to gain deeper insight into molecular pathways involving Shox2, we compared gene expression levels in right atria of wildtype and Shox2 ^−/− hearts using microarray experiments and identified the LIM homeodomain transcription factor Islet1 (Isl1) as one of its putative target genes. The downregulation of Isl1 expression in Shox2 ^−/− hearts was confirmed and the affected region narrowed down to the SAN by whole-mount in situ hybridization. Using luciferase reporter assays and EMSA studies, we identified two specific SHOX2 binding sites within intron 2 of the ISL1 locus. We also provide functional evidence for Isl1 as a transcriptional target of Shox2 by rescuing the Shox2-mediated bradycardia phenotype with Isl1 using zebrafish as a model system. Our findings demonstrate a novel epistatic relationship between Shox2 and Isl1 in the heart with important developmental consequences for SAN formation and heart beat.