Auxetic materials exhibit a negative Poisson's ratio, i.e., they become thicker rather than thinner in at least one dimension when strained. Recently, a nematic liquid crystal elastomer (LCE) was shown to be the first synthetic auxetic material at a molecular level. Understanding the mechanism of the auxetic response in LCEs is clearly important, and it has been suggested through detailed Raman scattering studies that it is related to the reduction of uniaxial order and emergence of biaxial order on strain. In this paper, we demonstrate direct observation of the biaxial order in an auxetic LCE under strain. We fabricated ~100 μm thick LCE strips with complementary geometries, exhibiting either planar or homeotropic alignment, in which the auxetic response is seen in the thickness or width of the sample, respectively. Polarized Raman scattering measurements on the planar sample show directly the reduction in the uniaxial order parameters on strain and suggest the emergence of biaxial order to mediate the auxetic response in the sample thickness. The homeotropic sample is studied via conoscopy, allowing direct observation of both the auxetic response in the width of the sample and increasing biaxiality in the LCE as it is strained. We verified that the mechanism of the auxetic response in auxetic LCEs is due to the emergence of the biaxial order and conclude such materials can be added to the small number of biaxial nematic systems that have been observed. Importantly, we also show that the mechanical Frèedericksz transition seen in some LCEs is consistent with a strain-induced transition from an optically positive to an optically negative biaxial system under strain, rather than a director rotation in a uniaxial system.