We have studied the functional interaction between retinoic acid and transforming growth factor-beta (TGF-beta), using the mouse epidermis as a model system. Treatment with retinoic acid increases expression of TGF-beta 2 in cultured keratinocytes in vitro, as well as in the epidermis in vivo. This TGF-beta 2 is secreted in a biologically active form that can bind to surface receptors, in contrast to most other conditions in which TGF-beta is secreted in a latent form. Specific antibodies to TGF-beta 2 partially reverse the ability of retinoic acid to inhibit DNA synthesis in cultured keratinocytes. The regulation of TGF-beta 2 expression by retinoic acid may have important physiological and pharmacological roles in the maintenance of epidermal homeostasis.