Serration found along leaf margins shows species-specific characters. Whereas compound leaf development is well studied, the process of serration formation is largely unknown. To understand mechanisms of serration development, we investigated distinctive features of cells that could give rise to tooth protrusion in the simple-leaf plant Arabidopsis. After the emergence of a tooth, marginal cells, except for cells at the sinuses and tips, started to elongate rapidly. Localized cell division seemed to keep cells at the sinus smaller, rather than halt cell elongation. As leaves matured, the marginal cell number between teeth became similar in any given tooth. These results suggest that teeth are formed by repetition of an unknown mechanism that spatially monitors cell number and regulates cell division. We then examined the role of CUP-SHAPED COTYLEDON 2 (CUC2) in serration development. cuc2-3 forms fewer hydathodes and auxin maxima, visualized by DR5rev::GFP, at the leaf margin, suggesting that CUC2 patterns serration through the regulation of auxin. In contrast to a previous interpretation, comparison of leaf outlines revealed that CUC2 promotes outgrowth of teeth rather than suppression of growth at the sinuses. We found that mutants with increased CUC2 expression form ectopic tissues and mis-express SHOOT MERISTEMLESS (STM) at the sinus between the enhanced teeth. Similar but infrequent STM expression was found in the wild type, indicating STM involvement in the serration of simple leaves. Our study provides insights into the morphological and molecular mechanisms for leaf development and tooth formation, and highlights similarities between serration and compound leaf development.