Retinoic acid induces the differentiation of many murine teratocarcinoma stem cell lines. To elucidate the molecular mechanism of action of retinoic acid, we have selected a series of mutants which exhibit altered differentiation responses to retinoic acid. All of the mutants display abnormal morphology following addition of 5 X 10(-7) M retinoic acid (RA) and dibutyryl cAMP. In addition, none of the mutants are resistant to the cytotoxic effects of higher concentrations of retinoic acid (greater than 75 microM). After the addition of retinoic acid, one mutant, RA-3-10, does not differentiate by any of the biochemical criteria we have used; this mutant also possesses less than 5% of the wild type level of cellular retinoic acid binding protein (CRABP). Other mutants, such as RA-3-3, RA-3-4, and RA-5-1, contain the same amount of CRABP as wild type F9 cells. However, the mutants RA-3-3 and RA-3-4 exhibit lower levels of plasminogen activator activity, and RA-3-4 also exhibits only 10-20% of the wild type synthesis and secretion of laminin and collagen IV following treatment with RA. After RA treatment of the mutant RA-5-1, laminin and collagen IV are synthesized and secreted at reduced rates relative to wild type cells, and the secreted collagen IV has a lower molecular weight than that of wild type; this suggests that RA-5-1 cells have a mutation in one of the enzymes responsible for post-translational modification of collagen IV. None of the mutants tested exhibits alterations in either cytosolic or membrane bound cAMP-dependent protein kinase activity. These studies provide genetic evidence that the CRABP is required for the differentiation of F9 teratocarcinoma stem cells by retinoic acid. However, even in the presence of CRABP, other types of alterations, such as synthesis of collagen IV with an abnormal molecular weight, appear to cause alterations in the differentiation response of cells to retinoic acid.