Cholestasis leads to liver cell death, fibrosis, cirrhosis, and eventually liver failure. Despite limited benefits, ursodeoxycholic acid (UDCA) is the only Food and Drug Administration–approved treatment for cholestatic disorders. Retinoic acid (RA) is a ligand for nuclear receptors that modulate bile salt homeostasis. RA also possesses immunomodulatory effects and is used to treat acute promyelocytic leukemia and inflammatory disorders such as psoriasis, acne, and rheumatoid arthritis. To test whether the supplementation of RA with UDCA is superior to UDCA alone for treating cholestasis, male Sprague‐Dawley rats underwent common bile duct ligation (BDL) for 14 days and were treated with phosphate‐buffered saline (PBS), UDCA, all‐trans retinoic acid (atRA), or UDCA and atRA by gavage. Treatment with UDCA and atRA substantially improved animal growth rates, significantly reduced liver fibrosis and bile duct proliferation, and nearly eliminated liver necrosis after BDL. Reductions in the bile salt pool size and liver hydroxyproline content were also seen with treatment with atRA or atRA and UDCA versus PBS and UDCA. Furthermore, atRA and UDCA significantly reduced liver messenger RNA and/or protein expression of transforming growth factor β1 (Tgf‐β1), collagen 1a1 (Col1A1), matrix metalloproteinase 2 (Mmp2), cytokeratin 19, α‐smooth muscle actin (α‐SMA), cytochrome P450 7A1 (Cyp7a1), tumor necrosis factor α, and interleukin‐β1. The molecular mechanisms of this treatment were also assessed in human hepatocytes, hepatic stellate cells, and LX‐2 cells. atRA alone or in combination with UDCA greatly repressed CYP7A1 expression in human hepatocytes and significantly inhibited COL1A1, MMP2, and α‐SMA expression and/or activity in primary human hepatic stellate cells and LX‐2 cells. Furthermore, atRA reduced TGF‐β1–induced Smad2 phosphorylation in LX‐2 cells. Conclusion: Our findings indicate that the addition of RA to UDCA reduces the bile salt pool size and liver fibrosis and might be an effective supplemental therapy with UDCA for cholestatic diseases. (HEPATOLOGY 2011;53:548‐557.)