The role of retinoic acid receptors (RARs) in intercellular regulation of cell growth was assessed by targeting a dominant-negative RARalpha mutant (dnRARalpha) to differentiated suprabasal cells of mouse epidermis. dnRARalpha lacks transcriptional activation but not DNA-binding and receptor dimerization functions. Analysis of transgenic mice revealed that dnRARalpha dose-dependently impaired induction of basal cell proliferation and epidermal hyperplasia by all-trans RA (tRA). dnRARalpha formed heterodimers with endogenous retinoid X receptor-alpha (RXRalpha) over RA response elements in competition with remaining endogenous RARgamma-RXRalpha heterodimers, and dose-dependently impaired retinoid-dependent gene transcription. To identify genes regulated by retinoid receptors and involved in cell growth control, we analyzed the retinoid effects on expression of the epidermal growth factor (EGF) receptor, EGF, transforming growth factor-alpha, heparin-binding EGF-like growth factor (HB-EGF) and amphiregulin genes. In normal epidermis, tRA rapidly and selectively induced expression of HB-EGF but not the others. This induction occurred exclusively in suprabasal cells. In transgenic epidermis, dnRARalpha dose-dependently inhibited tRA induction of suprabasal HB-EGF and subsequent basal cell hyperproliferation. Together, our observations suggest that retinoid receptor heterodimers located in differentiated suprabasal cells mediate retinoid induction of HB-EGF, which in turn stimulates basal cell growth via intercellular signaling. These events may underlie retinoid action in epidermal regeneration during wound healing.