Although attention has focused on the chemopreventive action of retinoic acid (RA) in hepatocarcinogenesis, the functional role of RA in the liver has yet to be clarified. To explore the role of RA in the liver, we developed transgenic mice expressing RA receptor (RAR) α– dominant negative form in hepatocytes using albumin promoter and enhancer. At 4 months of age, the RAR α– dominant negative form transgenic mice developed microvesicular steatosis and spotty focal necrosis. Mitochondrial β‐oxidation activity of fatty acids and expression of its related enzymes, including VLCAD, LCAD, and HCD, were down‐regulated; on the other hand, peroxisomal β‐oxidation and its related enzymes, including AOX and BFE, were up‐regulated. Expression of cytochrome p4504a10, cytochrome p4504a12, and cytochrome p4504a14 was increased, suggesting that ω‐oxidation of fatty acids in microsomes was accelerated. In addition, formation of H₂O₂ and 8‐hydroxy‐2′‐deoxyguanosine was increased. After 12 months of age, these mice developed hepatocellular carcinoma and adenoma of the liver. The incidence of tumor formation increased with age. Expression of β‐catenin and cyclin D1 was enhanced and the TCF‐4/β‐catenin complex was increased, whereas the RAR α/ β‐catenin complex was decreased. Feeding on a high‐RA diet reversed histological and biochemical abnormalities and inhibited the occurrence of liver tumors. These results suggest that hepatic loss of RA function leads to the development of steatohepatitis and liver tumors. In conclusion, RA plays an important role in preventing hepatocarcinogenesis in association with fatty acid metabolism and Wnt signaling. (HEPATOLOGY 2004;40:366–375.)