Previous studies on retinoic acid receptor (RAR) mutants suggested that retinoic acid (RA) is required for loss of interdigital mesenchyme during digit formation. Here, we report that the RA-generating enzyme retinaldehyde dehydrogenase-2 (Raldh2) is expressed in the interdigital mesenchyme whereas Cyp26b1, controlling RA degradation, is expressed in digits, limiting autopodal RA action to the interdigital zones. Embryonic day 13.5 Raldh2-/- mouse embryos lose expression of the RARE-lacZ RA-reporter transgene and matrix metalloproteinase-11 (Mmp11) throughout the interdigital mesenchyme, while expression of RARb, Fgf18, and high mobility group N1 (Hmgn1) is lost at the digit-interdigit junction. Raldh2-/- autopods exhibit reduced interdigital apoptosis associated with loss of Bmp7 expression, but Bmp2, Bmp4, Msx2, and Fgf8 were unaffected. Although interdigital expression of Hmgn1 was greatly down-regulated in Raldh2-/- autopods, complementary expression of Sox9 in digit cartilage was unaffected. Regulation of Hmgn1 and Fgf18 at the digit-interdigit junction suggests RA controls tissue remodeling as well as apoptosis.