Retinoic acid (RA) is an important morphogen that regulates many biological processes, including the development of the central nervous system (CNS). Its synthesis from vitamin A (retinol) occurs in two steps, with the second reaction - catalyzed by retinal dehydrogenases (RALDHs) - long considered to be crucial for tissue-specific RA production in the embryo. We have recently identified the Xenopus homologue of retinol dehydrogenase 10 (XRDH10) that mediates the first step in RA synthesis from retinol to retinal. XRDH10 is specifically expressed in the dorsal blastopore lip and in other domains of the early embryo that partially overlap with XRALDH2 expression. We show that endogenous RA suppresses XRDH10 gene expression, suggesting negative-feedback regulation. In mRNA-injected Xenopus embryos, XRDH10 mimicked RA responses, influenced the gene expression of organizer markers, and synergized with XRALDH2 in posteriorizing the developing brain. Knockdown of XRDH10 and XRALDH2 by specific antisense morpholino oligonucleotides had the opposite effects on organizer gene expression, and caused a ventralized phenotype and anteriorization of the brain. These data indicate that the conversion of retinol into retinal is a developmentally controlled step involved in specification of the dorsoventral and anteroposterior body axes, as well as in pattern formation of the CNS. We suggest that the combinatorial gene expression and concerted action of XRDH10 and XRALDH2 constitute a ;biosynthetic enzyme code' for the establishment of a morphogen gradient in the embryo.