ABSTRACT In order to identify molecular mechanisms involved in striatal development, we employed a subtraction cloning strategy to enrich for genes expressed in the lateral versus the medial ganglionic eminence. Using this approach, the homeobox gene Meis2 was found highly expressed in the lateral ganglionic eminence and developing striatum. Since Meis2 has recently been shown to be upregulated by retinoic acid in P19 EC cells (Oulad-Abdelghani, M., Chazaud, C., Bouillet, P., Sapin, V., Chambon, P. and Dollé,P. (1997) Dev. Dyn. 210, 173-183), we examined a potential role for retinoids in striatal development. Our results demonstrate that the lateral ganglionic eminence, unlike its medial counterpart or the adjacent cerebral cortex, is a localized source of retinoids. Interestingly, glia (likely radial glia) in the lateral ganglionic eminence appear to be a major source of retinoids. Thus, as lateral ganglionic eminence cells migrate along radial glial fibers into the developing striatum, retinoids from these glial cells could exert an effect on striatal neuron differentiation. Indeed, the treatment of lateral ganglionic eminence cells with retinoic acid or agonists for the retinoic acid receptors or retinoid X receptors, specifically enhances their striatal neuron characteristics. These findings, therefore, strongly support the notion that local retinoid signalling within the lateral ganglionic eminence regulates striatal neuron differentiation.