To explore the role of retinoic acid (RA) in liver, we developed transgenic mice expressing retinoic acid receptor alpha dominant negative form (RARE) in hepatocytes using by albumin promoter and enhancer. At 4 months of age, the RARE transgenic mice developed microvesicular steatosis and spotty focal necrosis. Mitochondrial beta-oxidation activity of fatty acids and expression of its related enzymes including VLCAD, LCAD and HCD were down-regulated. On the other hand, peroxisomal beta-oxidation and its related enzymes including AOX and BFE were up-regulated. Expression of CYP4a10, CYP4a12 and CYP4a14 was increased, suggesting that omega-oxidation of fatty acids in microsome was accelerated. In addition, formation of H(2)O(2) and 8-hydroxy-2'-deoxyguanosine was increased. After 12 months of age, these mice developed liver tumors which are hepatocellular carcinoma or adenoma. The incidence of tumor formation was increased with age. Expression of beta-catenin and cyclin D1 was enhanced, and TCF-4/beta-catenin complex was increased whereas RARalpha/beta-catenin complex was decreased. Feeding on high RA diet reversed histological and biochemical abnormalities, and inhibited occurrence of liver tumor. Taken together, hepatic loss of RA function leads to development of steatohepatitis and liver tumor and RA plays an important role in preventing hepatocarcinogenesis in association with fatty acid metabolism and Wnt signaling.