Ethanol (EtOH) is a teratogen, but its teratogenic mechanisms are not fully understood. The alcohol form of vitamin A (retinol/ROL) can be oxidized to all--retinoic acid (RA), which plays a critical role in stem cell differentiation and development. Using an embryonic stem cell (ESC) model to analyze EtOH's effects on differentiation, we show here that EtOH and acetaldehyde, but not acetate, increase differentiation-associated mRNA levels, and that EtOH decreases pluripotency-related mRNAs. Using reporter assays, ChIP assays, and retinoic acid receptor-γ (RARγ) knockout ESC lines generated by CRISPR/Cas9 and homologous recombination, we demonstrate that EtOH signals via RARγ binding to RA response elements (RAREs) in differentiation-associated gene promoters or enhancers. We also report that EtOH-mediated increases in homeobox A1 () and cytochrome P450 family 26 subfamily A member 1 () transcripts, direct RA target genes, require the expression of the RA-synthesizing enzyme, aldehyde dehydrogenase 1 family member A2 (Aldh1a2), suggesting that EtOH-mediated induction of and requires ROL from the serum. As shown with CRISPR/Cas9 knockout lines, the retinol dehydrogenase gene and a functional RARE in the ROL transporter stimulated by retinoic acid 6 () gene are required for EtOH induction of and We conclude that EtOH stimulates stem cell differentiation by increasing the influx and metabolism of ROL for downstream RARγ-dependent transcription. 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.