Retinoids such as retinoic acid (RA) are potent anti-arthritic and anti-neoplastic agents. We investigated the mechanism by which RA inhibits induction of collagenase gene transcription by inflammatory mediators, tumor promoters, and proto-oncogenes. We found that the RA receptors (RARs) are potent inhibitors of AP-1 activity generated either by cJun homodimers or cJun/cFos heterodimers. In addition, both cJun and cFos can inhibit RAR activity. In vitro experiments suggested that this inhibition is due to an interaction between RAR and AP-1 proteins that results in mutual loss of DNA-binding activity. The RARs need not bind to the AP-1 site, neither does AP-1 bind to RA response elements. An understanding of this antagonism between the RAR and AP-1 might help to elucidate the anti-neoplastic and anti-arthritic effects of RA as well as its effects on cell differentiation and proliferation.