Epidemiological and animal studies have demonstrated that vitamin A and its natural and synthetic derivatives, retinoids, are effective agents in preventing the development of tobacco‐associated cancers. Unfortunately, clinical trials of retinoids on cigarette smokers have shown lack of efficacy in preventing lung cancer. In our study, we investigated the effect of nicotine on the anti‐cancer activity of all trans‐retinoic acid (trans‐RA) in human lung cancer cells. Our results demonstrated that nicotine could abrogate the growth inhibitory effect of trans‐RA by suppressing its ability to induce the expression of RA receptor beta (RARβ), a tumor suppressor. The inhibitory effect of nicotine was accompanied with induction of orphan receptor TR3. Inhibition of TR3 expression by overexpression of TR3 anti‐sense RNA in H460 lung cancer cells strongly prevented the suppressive effect of nicotine on trans‐RA activity. Treatment with nicotine or the cotransfection of TR3 expression vector inhibited the induction of RARβ promoter activity by trans‐RA in transient transfection assays. The inhibition of RARβ promoter activity was due to the interaction of TR3 with orphan receptor COUP‐TF, resulting in inhibition of COUP‐TF DNA binding and transactivation on the RARβ promoter. Furthermore, we found that nicotine failed to suppress the effect of a retinoid X receptor (RXR)‐selective retinoid SR11237 on inducing both growth inhibition and RARβ promoter activity, due to the ability of SR11237 to activate the RARβ promoter through the RXR/TR3 heterodimer. Together, our results demonstrate that nicotine suppresses the growth inhibitory effects of trans‐RA by inhibiting RARβ expression through its induction of TR3 expression and suggest that RXR‐selective retinoids may be more effective than classical retinoids for preventing and treating tobacco‐associated cancers. © 2002 Wiley‐Liss, Inc.