We have previously shown that retinoic acid (RA) synthesized by the retinaldehyde dehydrogenase 2 (RALDH2) is required in forebrain development. Deficiency in RA due to inactivation of the mouse Raldh2 gene or to complete absence of retinoids in vitamin-A-deficient (VAD) quails, leads to abnormal morphogenesis of various forebrain derivatives. In this study we show that double Raldh2/Raldh3 mouse mutants have a more severe phenotype in the craniofacial region than single null mutants. In particular, the nasal processes are truncated and the eye abnormalities are exacerbated. It has been previously shown that retinoids act mainly on cell proliferation and survival in the ventral forebrain by regulating SHH and FGF8 signaling. Using the VAD quail model, which survives longer than the Raldh-deficient mouse embryos, we found that retinoids act in maintaining the correct position of anterior and dorsal boundaries in the forebrain by modulating FGF8 anteriorly and WNT signaling dorsally. Furthermore, BMP4 and FGF8 signaling are affected in the nasal region and BMP4 is ventrally expanded in the optic vesicle. At the optic cup stage, Pax6, Tbx5 and Bmp4 are ectopically expressed in the presumptive retinal pigmented epithelium (RPE), while Otx2 and Mitf are not induced, leading to a dorsal transdifferentiation of RPE to neural retina. Therefore, besides being required for survival of ventral structures, retinoids are involved in restricting anterior identity in the telencephalon and dorsal identity in the diencephalon and the retina.