Osteosarcoma (OS) is one of the most common malignant bone tumors. Despite the advancement of diagnosis and treatment for OS, the prognosis remains poor. We investigated the proliferation inhibitory effect of all-trans retinoic acid (ATRA) for human OS and the possible mechanism underlying this effect. We examined the proliferation inhibition and apoptosis-inducing effects of ATRA in 143B OS cells. We validated this effect by exogenously expressing the retinoic acid receptor alpha (RARα) in 143B OS cells and injecting the cells into nude mice. We explored the possible mechanism for the proliferation inhibitory effect of ATRA on OS cells and multipotential progenitor cells by detecting osteogenic markers. We demonstrated that the endogenous retinoic acid receptor and retinoid X receptor are all detectable in the commercially available OS cell lines and in primary osteosarcoma cells. ATRA inhibits the proliferation of OS cells in a concentration-dependent manner, as well as induces apoptosis in 143B OS cells. The exogenous expression of RARα inhibits the tumor growth and cell proliferation in vivo. The alkaline phosphatase activity, protein levels of osteopontin (OPN) and osteocalcin (OCN) are all promoted by ATRA in OS cells and mouse embryonic fibroblasts (MEFs), at least by activating the Smad signaling pathway. Collectively, our results strongly indicate that ATRA can inhibit the tumor growth of OS by promoting osteogenic differentiation in OS cells, which is mediated in part by activating Smad signaling. Therefore, combination of ATRA with other current chemotherapy agents may be a promising therapy strategy for OS treatment.