All epithelial cells require retinoic acid for growth, maintenance, and differentiation. Although the epithelial cells that line the gastrointestinal tract are exposed to extreme retinoid concentration fluctuations in luminal fluid, whether proliferation and differentiation in these cells are significantly affected is not known. We have investigated this question using Caco-2 cells as a model because, although they are derived from a colon adenocarcinoma, they differentiate spontaneously in a manner similar to enterocytes in the small intestine. We found that retinoic acid caused maximum inhibition of cell growth and ornithine decarboxylase activity during the proliferative period. Retinoic acid increased brush border enzyme activities only in differentiating cells but stimulated transglutaminase activity in cells at all stages. In untreated proliferating cells, we found an early peak of transglutaminase activity that has not been reported before. Retinoic acid in intestinal cells acts through its nuclear receptor, RAR beta. The nuclear distribution of this receptor has not been demonstrated. In this study, we show that RAR beta responds to increasing concentrations of retinoic acid with a shift to the nuclear membrane in undifferentiated cells and progressive aggregation, diffusion, and loss in differentiated cells. We conclude that retinoic acid can inhibit proliferation and stimulate differentiation in Caco-2 cells depending on concentration and cell stage, and that these effects are accompanied by changes in distribution, as well as by the loss of RAR beta.