Ethanol (EtOH) is a teratogen, but the mechanisms by which EtOH exerts its teratogenic effects aren’t fully understood. Vitamin A (all-trans retinol/ROL) can be oxidized to all-trans-retinoic acid (RA), which plays a critical role in differentiation and development. Using an embryonic stem cell (ESC) model to analyze effects of EtOH on differentiation, we show that mRNAs associated with differentiation are increased by EtOH and its metabolite acetaldehyde, but not its acid metabolite acetate. EtOH also decreases pluripotency-related mRNA levels. Kinetics assays showed that ALDH2, and not ALDH1A2, is responsible for metabolizing most of the acetaldehyde in ESCs. Using reporter assays, chromatin immunoprecipitation assays, and RAR?-knockout ESC lines generated by CRISPR/Cas9 or homologous recombination, we demonstrate that EtOH signals via RAR? binding to RA response elements (RAREs) in differentiation-associated genes. We also demonstrate that EtOH-mediated increases in Hoxa1 and Cyp26a1 transcripts, used as examples of direct RA target genes, require expression of the RA-synthesizing enzyme ALDH1A2. This result suggests that EtOH-mediated induction of Hoxa1 and Cyp26a1 transcripts requires ROL from serum. The retinol dehydrogenase gene RDH10 and a functional RARE in the ROL transporter Stra6 gene are required for EtOH induction of Hoxa1 and Cyp26a1 mRNAs, as shown with CRISPR/Cas9 knockout lines. Thus, we identify a mechanism by which EtOH stimulates stem cell differentiation via increased influx and metabolism of ROL for downstream RAR?-dependent transcription. Our data suggest that in stem cells EtOH may shift cell fate decisions to alter developmental outcomes by increasing endogenous ROL/RA signaling via increased STRA6 expression and ROL oxidation. Furthermore, we suggest that stem cells, which generally cannot produce retinyl esters, may be particularly vulnerable to EtOH teratogenesis.