TGIF (TG-interacting factor) represses transforming growth factor beta (TGF-beta)-activated gene expression and can repress transcription via a specific retinoid response element. Mutations in human TGIF are associated with holoprosencephaly, a severe defect of craniofacial development with both genetic and environmental causes. Both TGF-beta and retinoic acid signaling are implicated in craniofacial development. Here, we analyze the role of TGIF in regulating retinoid responsive gene expression. We demonstrate that TGIF interacts with the ligand binding domain of the RXRalpha retinoid receptor and represses transcription from retinoid response elements. TGIF recruits the general corepressor, CtBP, to RXRalpha, and this recruitment is required for full repression by TGIF. Interaction between TGIF and RXRalpha is reduced by the addition of retinoic acid, consistent with a role for TGIF as an RXRalpha transcriptional corepressor. We created a Tgif null mutation in mice and tested the sensitivity of mutant mice to increased levels of retinoic acid. Tgif mutant embryos are more sensitive to retinoic acid-induced teratogenesis, and retinoid target genes are expressed at a higher level in tissues from Tgif null mice. These results demonstrate an important role for TGIF as a transcriptional corepressor, which regulates developmental signaling by retinoic acid, and raises the possibility that TGIF may repress other RXR-dependent transcriptional responses.