Amphioxus, the closest living invertebrate relative of the vertebrates, has a notochord, segmental axial musculature, pharyngeal gill slits and dorsal hollow nerve cord, but lacks neural crest. In amphioxus, as in vertebrates, exogenous retinoic acid (RA) posteriorizes the embryo. The mouth and gill slits never form, AmphiPax1, which is normally downregulated where gill slits form, remains upregulated and AmphiHox1 expression shifts anteriorly in the nerve cord. To dissect the role of RA signaling in patterning chordate embryos, we have cloned the single retinoic acid receptor (AmphiRAR), retinoid X receptor (AmphiRXR) and an orphan receptor (AmphiTR2/4) from amphioxus. AmphiTR2/4 inhibits AmphiRAR-AmphiRXR-mediated transactivation in the presence of RA by competing for DR5 or IR7 retinoic acid response elements (RAREs). The 5' untranslated region of AmphiTR2/4 contains an IR7 element, suggesting possible auto- and RA-regulation. The patterns of AmphiTR2/4 and AmphiRAR expression during embryogenesis are largely complementary: AmphiTR2/4 is strongly expressed in the cerebral vesicle (homologous to the diencephalon plus anterior midbrain), while AmphiRAR expression is high in the equivalent of the hindbrain and spinal cord. Similarly, while AmphiTR2/4 is expressed most strongly in the anterior and posterior thirds of the endoderm, the highest AmphiRAR expression is in the middle third. Expression of AmphiRAR is upregulated by exogenous RA and completely downregulated by the RA antagonist BMS009. Moreover, BMS009 expands the pharynx posteriorly; the first three gill slit primordia are elongated and shifted posteriorly, but do not penetrate, and additional, non-penetrating gill slit primordia are induced. Thus, in an organism without neural crest, initiation and penetration of gill slits appear to be separate events mediated by distinct levels of RA signaling in the pharyngeal endoderm. Although these compounds have little effect on levels of AmphiTR2/4 expression, RA shifts pharyngeal expression of AmphiTR2/4 anteriorly, while BMS009 extends it posteriorly. Collectively, our results suggest a model for anteroposterior patterning of the amphioxus nerve cord and pharynx, which is probably applicable to vertebrates as well, in which a low anterior level of AmphiRAR (caused, at least in part, by competitive inhibition by AmphiTR2/4) is necessary for patterning the forebrain and formation of gill slits, the posterior extent of both being set by a sharp increase in the level of AmphiRAR. Supplemental data available on-line