Retinoids (vitamin A and its metabolites) are suspected of regulating diverse aspects of growth, differentiation, and patterning during embryogenesis, but many questions remain about the identities and functions of the endogenous active retinoids involved. The pleiotropic effects of retinoids may be explained by the existence of complex signal transduction pathways involving diverse nuclear receptors of the retinoic acid receptor (RAR) and retinoid X receptor (RXR) families, and at least two types of cellular retinoic acid binding proteins (CRABP-I and -II). The different RARs, RXRs, and CRABPs have different expression patterns during vertebrate embryogenesis, suggesting that they each have particular functions. Another level at which fine tuning of retinoid action could occur is the metabolism of vitamin A to active metabolites, which may include all-trans-retinoic acid, all-trans-3,4-didehydroretinoic acid, 9-cis-retinoic acid, and 14-hydroxy-4,14-retroretinol. Formation of the metabolite all-trans-4-oxo-retinoic acid from retinoic acid was considered to be an inactivation pathway during growth and differentiation. We report here that, in contrast, 4-oxo-retinoic acid is a highly active metabolite which can modulate positional specification in early embryos. We also show that this retinoid binds avidly to and activates RAR beta, and that it is available in early embryos. The different activities of 4-oxo-retinoic acid and retinoic acid in modulating positional specification on the one hand, and growth and differentiation on the other, interest us in the possibility that specific retinoid ligands regulate different physiological processes in vivo.