The high expression of aldehyde dehydrogenase 1, also known as retinaldehyde dehydrogenase, by hematopoietic stem cells (HSCs) suggests an important role for retinoic acid (RA) signaling in determining the fate of these cells. We found that primitive human bone marrow-derived CD34⁺CD38⁻ cells not only highly express aldehyde dehydrogenase 1, but also the RA receptor α. Despite the up-regulation of early components of RA signaling, the downstream pathway remained inactive in the primitive CD34⁺CD38⁻ cells. Primitive hematopoietic cells rapidly undergo terminal differentiation when cultured away from their microenvironment; however, we found that inhibition of RA signaling maintained their primitive phenotype and function, and promoted their self-renewal. HSCs reside in a complex microenvironment that enforces the balance between self-renewal and differentiation. The exact physiologic mechanisms by which the niche controls HSC fate remain elusive. The embryonic gonadal microenvironment has recently been shown to determine germ-cell fate by degrading RA through expression of the P450 retinoid-inactivating enzyme CYP26B1. We found that the bone marrow microenvironment similarly can control primitive hematopoietic cell fate via modulation of retinoid bioavailability. Accordingly, we found that bone marrow stromal cell CYP26 was also able to inactivate retinoids in serum, preventing RA signaling. Thus, primitive hematopoietic cells appear to be intrinsically programmed to undergo RA-mediated differentiation unless prevented from doing so by bone marrow niche CYP26. Modulation of RA signaling also holds promise for clinical HSC expansion, a prerequisite for the wide-scale use of these cells in regenerative medicine and gene therapy.