All-trans-retinoic acid (RA) treatment of the multipotent human teratocarcinoma (TC) cell line NTERA-2 clone D1 (abbreviated NT2/D1) induces a neuronal phenotype. Compared to untreated NT2/D1 cells, RA treated cells have reduced proliferative potential. To identify which retinoic acid receptor (RAR) is directly linked to RA response in these cells, nine RA resistant subclones were derived and characterized. Unlike parental NT2/D1 cells, all these subclones and a de novo RA resistant human TC cell line, N2102Ep clone 2AG (abbreviated N2102ep), exhibited reduced RAR gamma expression. The RAR gamma gene was studied within NT2/D1 cells and a representative RA resistant NT2/D1 subclone called NT2/D1-R1 by Southern analysis and by the transcriptional properties of cloned RAR gamma cDNAs. No structural or functional differences between these RAR gamma species were found suggesting that RA resistance is due to reduced levels of RAR gamma expressed in NT2/D1-R1 cells. To explore this possibility an RAR gamma cDNA was stably transfected into NT2/D1-R1 cells. Expression of this cDNA partially restored the response to RA in NT2/D1-R1 cells. The role of RAR gamma in parental NT2/D1 cells was studied in transient transfection assays using an FGF4 promoter-enhancer reporter construct that is transcriptionally active in undifferentiated but not in differentiated TC cells. The dose dependent co-transfection of an expressed RAR gamma cDNA with this reporter more efficiently repressed its transcriptional activity in the presence of RA than transfection of the reporter without expressed RAR gamma. Co-transfection also decreased reporter activity in the absence of exogenously added ligand. Together, these findings reveal that RAR gamma expression is tightly coupled to RA response and resistance in human TC cells. These data implicate an important role for RAR gamma in the RA-mediated differentiation of these TCs.