Diabetes is a risk factor for neuronal dysfunction. Impairment in signaling mechanisms that regulate differentiation of neurons is hypothesized to be one of the main causes of neuronal dysfunction. Retinoic acid, a physiologically active retinoid synthesized from vitamin A, regulates neuronal differentiation during embryonic development and is required for maintenance of plasticity in differentiated neurons. To date, little is known about the molecular events underlying hyperglycemia-induced complications in the central nervous system (CNS). Here, we provide evidence, in a diabetes rat model, of hyperglycemia-induced oxidative stress along with apoptotic stress in developing cortical neurons isolated from 16-day-old rat embryos. We also demonstrate impaired retinoic acid signaling that is involved in neuronal differentiation. Retinoic acid-induced neurite outgrowth and expression of neuronal markers were reduced in this model. The activation of small-molecular weight G-protein, Rac1, that mediates these effects was also reduced. Retinoic acid applied at a physiological concentration significantly decreased hyperglycemia-induced oxidative stress and thus supported the antioxidant defense system. These results suggest that diabetes-induced neuronal complications during pregnancy might be due to impaired retinoic acid signaling, and exogenously administered retinoic acid may be useful against CNS complications associated with diabetes.