Background: Retinoic acid (RA) is essential for inner ear development. However, exposure to excess RA at a critical period leads to inner ear defects. These defects are associated with disruption in epithelial–mesenchymal interactions. METHODS: This study investigates the role of Dlx5 in the epithelial–mesenchymal interactions that guide otic capsule chondrogenesis, as well as the effect of excess in utero RA exposure on Dlx5 expression in the developing mouse inner ear. Control of Dlx5 by Fgf3 and Fgf10 under excess RA conditions is investigated by examining the developmental window during which Fgf3 and Fgf10 are altered by in utero RA exposure and by testing the ability of Fgf3 and Fgf10 to mitigate the reduction in chondrogenesis and Dlx5 expression mediated by RA in high-density cultures of periotic mesenchyme containing otic epithelium, a model of epithelial–mesenchymal interactions in which chondrogenic differentiation of periotic mesenchyme ensues in response to induction by otic epithelium. RESULTS:Dlx5 deletion alters expression of TGFβ1, important for otic capsule chondrogenesis, in the developing inner ear and compromises the ability of cultured periotic mesenchyme containing otic epithelium, harvested from Dlx5 null embryos, to differentiate into cartilage when compared with control cultures. Downregulation in Dlx5 ensues as a consequence of in utero RA exposure in association with inner ear dysmorphogenesis. This change in Dlx5 is noted at embryonic day 10.5 (E10.5), but not at E9.5, suggesting that Dlx5 is not a direct RA target. Before Dlx5 downregulation, Fgf3 and Fgf10 expression is modified in the inner ear by excess RA, with the ability of exogenous Fgf3 and Fgf10 to rescue chondrogenesis and Dlx5 expression in RA-treated cultures of periotic mesenchyme containing otic epithelium supporting these fibroblast growth factors (FGFs) as intermediary genes by which RA mediates its effects. CONCLUSIONS: Disruption in an Fgf3, -10/Dlx5 signaling cascade is operant in molecular mechanisms of inner ear teratogenesis by excess RA. Birth Defects Res (Part B) 2008. ©2008 Wiley-Liss, Inc.