Retinoic acid, a developmental signal implicated in the formation of the neural axis, is present at high levels in the early embryonic trunk region, where it is synthesized by a novel dehydrogenase. Here we show that the same enzyme is inducible by retinoic acid in P19 teratocarcinoma cells, and we report the cloning from P19 cells of a cDNA encoding a novel dehydrogenase, named retinaldehyde dehydrogenase‐2 (RALDH‐2). Expression in COS cells shows RALDH‐2 to be highly effective in oxidation of retinaldehyde, with no detectable activity on any other aldehyde tested. In situ hybridization histochemistry on the embryonic trunk reveales RALDH‐2 mRNA both in mesoderm and neuroectoderm, with highest neuroectodermal expression in the ventral horn of the spinal cord at two restricted locations along the anteroposterior axis, presumably the subpopulation of motoneurons that innervate the limbs.