Congenital hypertrophy/hyperplasia of the retinal pigmented epithelium is an ocular lesion found in patients harboring mutations in the adenomatous polyposis coli (APC) tumor suppressor gene. We report that Apc-deficient zebrafish display developmental abnormalities of both the lens and retina. Injection of dominant-negative Lef reduced Wnt signaling in the lens but did not rescue retinal differentiation defects. In contrast, treatment of apc mutants with all-trans retinoic acid rescued retinal differentiation defects but had no apparent effect on the lens. We identified Rdh5 as a retina-specific retinol dehydrogenase controlled by APC. Morpholino knockdown of Rdh5 phenocopied the apc mutant retinal differentiation defects and was rescued by treatment with exogenous all-trans retinoic acid. Microarray analyses of apc mutants and Rdh5 morphants revealed a profound overlap in the transcriptional profile of these embryos. These findings support a model wherein Apc serves a dual role in regulating Wnt and retinoic acid signaling within the eye and suggest retinoic acid deficiency as an explanation for APC mutation-associated retinal defects such as congenital hypertrophy/hyperplasia of the retinal pigmented epithelium.