Genetic evidence in Arabidopsis (Arabidopsis thaliana) suggests that the auxin precursor indole-3-butyric acid (IBA) is converted into active indole-3-acetic acid (IAA) by peroxisomal beta-oxidation; however, direct evidence that Arabidopsis converts IBA to IAA is lacking, and the role of IBA-derived IAA is not well understood. In this work, we directly demonstrated that Arabidopsis seedlings convert IBA to IAA. Moreover, we found that several IBA-resistant, IAA-sensitive mutants were deficient in IBA-to-IAA conversion, including the indole-3-butyric acid response1 (ibr1) ibr3 ibr10 triple mutant, which is defective in three enzymes likely to be directly involved in peroxisomal IBA beta-oxidation. In addition to IBA-to-IAA conversion defects, the ibr1 ibr3 ibr10 triple mutant displayed shorter root hairs and smaller cotyledons than wild type; these cell expansion defects are suggestive of low IAA levels in certain tissues. Consistent with this possibility, we could rescue the ibr1 ibr3 ibr10 short-root-hair phenotype with exogenous auxin. A triple mutant defective in hydrolysis of IAA-amino acid conjugates, a second class of IAA precursor, displayed reduced hypocotyl elongation but normal cotyledon size and only slightly reduced root hair lengths. Our data suggest that IBA beta-oxidation and IAA-amino acid conjugate hydrolysis provide auxin for partially distinct developmental processes and that IBA-derived IAA plays a major role in driving root hair and cotyledon cell expansion during seedling development.