In this report, we describe an auto-regulatory loop in human keratinocytes, whereby all-trans retinoic acid (retinoic acid) regulates its own biosynthesis from all-trans retinol (retinol) through regulation of retinol esterification. Retinol esterification activity was low in normal proliferating human keratinocytes, cultured in retinoid-free media. Treatment of keratinocytes with retinoic acid induced retinol esterifying activity (8-fold). Induction of retinol esterifying activity was blocked by either actinomycin D or cycloheximide. Based on substrate specificity and inhibitor sensitivity, lecithin:retinol acyltransferase (LRAT) was identified as the retinoic acid-inducible retinol esterifying enzyme. Induction of LRAT by retinoic acid reduced conversion of retinol to retinoic acid by 50%. This reduction in retinoic acid synthesis resulted from sequestration of retinol as retinyl esters, since inhibition of LRAT restored retinoic acid synthesis to control levels. In normal human skin, undifferentiated keratinocytes, in the lowest cell layer, esterified retinol 4 times greater, than differentiating keratinocytes, in upper cell layers, reflecting an induced state, under conditions of retinol sufficiency. Regulation of LRAT activity by retinoic acid provides a novel mechanism through which retinoic acid can regulate its own level by controlling availability of retinol for conversion to retinoic acid. In human skin in vivo, retinyl esters synthesized in basal keratinocytes could undergo hydrolysis during differentiation and thus serve as a source of retinol for keratinocytes in upper layers of skin.