Retinoic acid receptors (RARs), which are involved in retinoic acid signal transduction, are essential for maintaining the differentiated state of epithelial tissues. Mammary glands are skin appendages whose development is initiated through continuous cell-cell interactions between the ectoderm and the adjacent mesenchyme. Considerable progress has been made in elucidating the molecular basis of these interactions in mammary gland formation in mouse embryos, including the network of initiating signals comprising Fgfs, Wnts and Bmps involved in gland positioning and the transcription factors, Tbx3 and Lef1, essential for mammary gland development. Here, we provide evidence that retinoic acid signaling may also be involved in mammary gland development. We documented the expression of gene-encoding enzymes that produce retinoic acid (Raldh2) and enzymes that degrade it (Cyp26a1, Cyp26b1). We also analyzed the expression of RAR-β, a direct transcriptional target of retinoic acid signaling. Raldh2 and RAR-β were expressed in E10-E10.5 mouse embryos in somites adjacent to the flank region where mammary buds 2, 3 and 4 develop. These expression patterns overlapped with that of Fgf10, which is known to be required for mammary gland formation. RAR-β was also expressed in the mammary mesenchyme in E12 mouse embryos; RAR-β protein was expressed in the mammary epithelium and developing fat pad. Retinoic acid levels in organ cultures of E10.5 mouse embryo flanks were manipulated by adding either retinoic acid or citral, a retinoic acid synthesis inhibitor. Reduced retinoic acid synthesis altered the expression of genes involved in retinoic acid homeostasis and also demonstrated that retinoic acid signaling is required for Tbx3 expression, whereas high levels of retinoic acid signaling inhibited Bmp4 expression and repressed Wnt signaling. The results of the experiments using RNAi against Tbx3 and Wnt10b suggested feedback interactions that regulate retinoic acid homeostasis in mammary gland-forming regions. We produced a molecular model for mammary gland initiation that incorporated retinoic acid signaling.