Cellular differentiation by the vitamin A derivative retinoic acid (RA) has been studied with undifferentiated pluripotent embryonic carcinoma (EC) and embryonic stem (ES) cells in vitro. Both cellular systems are suitable to study differentiation of various cell types, because they recapitulate early stages of mouse embryogenesis. In vivo, RA was identified as a morphogenic and teratogenic compound and furthermore as a signalling molecule influencing gene expression in a complex manner via a family of RA receptors. Here, we summarize in vitro studies with ES and EC cells in comparison to in vivo studies that have contributed to our understanding how RA influences differentiation and regulates gene expression. We demonstrate that modulation of ES cell differentiation in vitro by RA depends on the concentration and developmental stage of application which is comparable to its stage-dependent influence on embryonic development in vivo.