Development of normal colon epithelial cells proceeds through a systematic differentiation of cells that emerge from stem cells within the base of colon crypts. Genetic mutations in the adenomatous polyposis coli (APC) gene are thought to cause colon adenoma and carcinoma formation by enhancing colonocyte proliferation and impairing differentiation. We currently have a limited understanding of the cellular mechanisms that promote colonocyte differentiation. Herein, we present evidence supporting a lack of retinoic acid biosynthesis as a mechanism contributing to the development of colon adenomas and carcinomas. Microarray and reverse transcriptase-PCR analyses revealed reduced expression of two retinoid biosynthesis genes: retinol dehydrogenase 5 (RDH5) and retinol dehydrogenase L (RDHL) in colon adenomas and carcinomas as compared with normal colon. Consistent with the adenoma and carcinomas samples, seven colon carcinoma cell lines also lacked expression of RDH5 and RDHL. Assessment of RDH enzymatic activity within these seven cell lines showed poor conversion of retinol into retinoic acid when compared with normal cells such as normal human mammary epithelial cells. Reintroduction of wild type APC into an APC-deficient colon carcinoma cell line (HT29) resulted in increased expression of RDHL without affecting RDH5. APC-mediated induction of RDHL was paralleled by increased production of retinoic acid. Investigations into the mechanism responsible for APC induction of RDHL indicated that beta-catenin fails to repress RDHL. The colon-specific transcription factor CDX2, however, activated an RDHL promoter construct and induced endogenous RDHL. Finally, the induction of RDHL by APC appears dependent on the presence of CDX2. We propose a novel role for APC and CDX2 in controlling retinoic acid biosynthesis and in promoting a retinoid-induced program of colonocyte differentiation.