Using genetic approaches in the mouse, we show that the primary target tissue of retinoic acid (RA) action during eye morphogenesis is not the retina nor the corneal ectoderm, which both express RA-synthesizing retinaldehyde dehydrogenases (RALDH1 and RALDH3), but the neural crest cell-derived periocular mesenchyme (POM), which is devoid of RALDH. In POM, the effects of the paracrine RA signal are mediated by the nuclear RA receptors heterodimers RXRα/RARβ and RXRα/RARγ. These heterodimers appear to control: (1) the remodeling of the POM through activation of Eya2-related apoptosis; (2) the expression of Foxc1 and Pitx2, which play crucial roles in anterior eye segment development;and (3) the growth of the ventral retina. We additionally show that RALDH1 and RALDH3 are the only enzymes that are required for RA synthesis in the eye region from E10.5 to E13.5, and that patterning of the dorsoventral axis of the retina does not require RA.