We describe a new zebrafish mutation, neckless, and present evidence that it inactivates retinaldehyde dehydrogenase type 2, an enzyme involved in retinoic acid biosynthesis. neckless embryos are characterised by a truncation of the anteroposterior axis anterior to the somites, defects in midline mesendodermal tissues and absence of pectoral fins. At a similar anteroposterior level within the nervous system, expression of the retinoic acid receptor a and hoxb4 genes is delayed and significantly reduced. Consistent with a primary defect in retinoic acid signalling, some of these defects in neckless mutants can be rescued by application of exogenous retinoic acid. We use mosaic analysis to show that the reduction in hoxb4 expression in the nervous system is a non-cell autonomous effect, reflecting a requirement for retinoic acid signalling from adjacent paraxial mesoderm. Together, our results demonstrate a conserved role for retinaldehyde dehydrogenase type 2 in patterning the posterior cranial mesoderm of the vertebrate embryo and provide definitive evidence for an involvement of endogenous retinoic acid in signalling between the paraxial mesoderm and neural tube.