Heterotopic ossification consists of ectopic bone formation within soft tissues after surgery or trauma. It can have debilitating consequences, but there is no definitive cure. Here we show that heterotopic ossification was essentially prevented in mice receiving a nuclear retinoic acid receptor-γ (RAR-γ) agonist. Side effects were minimal, and there was no significant rebound effect. To uncover the mechanisms of these responses, we treated mouse mesenchymal stem cells with an RAR-γ agonist and transplanted them into nude mice. Whereas control cells formed ectopic bone masses, cells that had been pretreated with the RAR-γ agonist did not, suggesting that they had lost their skeletogenic potential. The cells became unresponsive to rBMP-2 treatment in vitro and showed decreases in phosphorylation of Smad1, Smad5 and Smad8 and in overall levels of Smad proteins. In addition, an RAR-γ agonist blocked heterotopic ossification in transgenic mice expressing activin receptor-like kinase-2 (ALK2) Q207D, a constitutively active form of the receptor that is related to ALK2 R206H found in individuals with fibrodysplasia ossificans progressiva. The data indicate that RAR-γ agonists are potent inhibitors of heterotopic ossification in mouse models and, thus, may also be effective against injury-induced and congenital heterotopic ossification in humans.