Most osteichthyans continuously replace their teeth throughout their lifetimes. Replacement teeth may develop in the soft tissue outside the bone to which they will attach (“extraosseous”) or in sockets within the bone (“intraosseous”) beneath their functional predecessor. This paper presents a systematic documentation of the position of developing replacement teeth in teleost fishes, based upon a literature review and examination of modern skeletal material. Plotting the distribution of this character on a cladogram of teleost phylogeny indicates that extraosseous development of replacement teeth is plesiomorphic. Intraosseous development, the derived state, has evolved in at least three clades: in branchial and palatal dentitions of the elopiform Albula; in oral dentitions of several characiforms; and in oral and/or pharyngeal dentitions of various acanthopterygians, especially many perciforms. Two interrelated changes are necessary for the evolution of this derived state: replacement teeth must move beneath their functional predecessors; and replacement teeth must be encased in bone. Intraosseous development of replacement teeth may affect the relation of the dermal and endochondral skeletons.