Retinoic acid (RA) has been implicated in cardiac morphogenesis by its teratogenic effects on the heart, although its role in normal cardiogenesis remains unknown. To define the parameters of RA action in cardiac morphogenesis, we analyzed the patterns of ligand synthesis, response, and inactivation in the developing mouse heart. Activation of a lacZ transgene controlled by an RA response element (RARE) was compared to the localization of the retinaldehyde-oxidizing dehydrogenase RALDH2, the earliest RA synthetic enzyme in the mouse embryo, and to the expression of a gene encoding an RA-degrading enzyme (P450RA). We observed that RALDH2 localization and RA response were virtually superimposable throughout heart development. Initially, both RALDH2 and RARE-LacZ activity were restricted to the sinus venosa in unlooped hearts, but were high in the dorsal mesocardium, while P450RA expression was restricted to the endocardium. Later stages were characterized by a sequential, noncontiguous progression of RALDH2 accumulation and RA response, from the sinus venosa to atria, dorsal-medial conotruncus, aortic arches, and the epicardium. This dynamic pattern of RA response was a direct result of localized RALDH2, since hearts of cultured embryos were uniformly competent to respond to an exogenous RA challenge. These observations support a model in which the influence of endogenous RA on heart development depends upon localized presentation of the ligand, with only limited diffusion from the source of its synthesis.