The enzymes responsible for the rate-limiting step in retinoic acid biosynthesis, the oxidation of retinol to retinaldehyde, during embryogenesis and in adulthood have not been fully defined. Here, we report that a novel member of the short chain dehydrogenase/reductase superfamily, frog sdr16c5, acts as a highly active retinol dehydrogenase (rdhe2) that promotes retinoic acid biosynthesis when expressed in mammalian cells. In vivo assays of rdhe2 function show that overexpression of rdhe2 in frog embryos leads to posteriorization and induction of defects resembling those caused by retinoic acid toxicity. Conversely, antisense morpholino-mediated knockdown of endogenous rdhe2 results in phenotypes consistent with retinoic acid deficiency, such as defects in anterior neural tube closure, microcephaly with small eye formation, disruption of somitogenesis, and curved body axis with bent tail. Higher doses of morpholino induce embryonic lethality. Analyses of retinoic acid levels using either endogenous retinoic acid-sensitive gene hoxd4 or retinoic acid reporter cell line both show that the levels of retinoic acid are significantly decreased in rdhe2 morphants. Taken together, these results provide strong evidence that Xenopus rdhe2 functions as a retinol dehydrogenase essential for frog embryonic development in vivo. Importantly, the retinol oxidizing activity of frog rdhe2 is conserved in its mouse homologs, suggesting that rdhe2-related enzymes may represent the previously unrecognized physiologically relevant retinol dehydrogenases that contribute to retinoic acid biosynthesis in higher vertebrates. © 2012 by The American Society for Biochemistry and Molecular Biology, Inc.