Treatment of early Xenopus embryos with retinoic acid (RA) produces a concentration-dependent series of defects in anterior axial structures that range from small deletions to embryos lacking heads. The graded series of axial defects obtained after RA administration to early embryos appears to result, in part, from actions of RA on embryonic mesoderm. RA modifies the differentiation of anterior dorsal mesoderm from animal cap ectoderm induced by mesoderm-inducing peptide growth factors (PGFs). Concentrations of RA that suppress anterior dorsal mesoderm result in the differentiation of mesoderm of more posterior or ventral character. The suppression of anterior dorsal mesoderm may account for the absence of anterior neural ectoderm after RA treatment. Although RA changes the character of mesoderm, it does not seem to affect mesodermal induction by PGFs or the levels of Xhox3 mRNA induced in the mesoderm by PGFs. RA therefore appears to affect steps downstream from those involved in the initial induction of mesoderm. In experiments to examine the possible physiological role of RA in early Xenopus development, dorsal and ventral ectoderm were found to respond differently to identical concentrations of PGFs. One potential basis for this heterogeneity is the existence of a localized inhibitor, possibly RA, in the early Xenopus embryo. RA could therefore contribute to axial patterning by inhibiting the development of mesoderm of different character induced by PGFs.