Retinoic acid is a biologically active derivative of vitamin A that is indispensable for inner ear development. The normal function of retinoic acid is achieved only at optimal homeostatic concentrations, with an excess or deficiency in retinoic acid leading to inner ear dysmorphogenesis. We present an overview of the role of retinoic acid in the developing mammalian inner ear, discussing both how and when retinoic acid may act to critically control a program of inner ear development. Molecular mechanisms of otic teratogenicity involving two members of the fibroblast growth factor family, FGF3 and FGF10, and their downstream targets, Dlx5 and Dlx6, are examined under conditions of both retinoic acid excess and deficiency. We term the effect of too little or too much retinoic acid on FGF/Dlx signaling a Goldilocks phenomenon. We demonstrate that in each case (retinoic acid excess, retinoic acid deficiency), retinoic acid can directly affect FGF3/FGF10 signaling within the otic epithelium, leading to downregulated expression of these essential signaling molecules, which in turn, leads to diminution in Dlx5/Dlx6 expression. Non-cell autonomous affects of the otic epithelium subsequently occur, altering transforming growth factor beta (TGFβ) expression in the neighboring periotic mesenchyme and serving as a putative explanation for retinoic acid-mediated otic capsule defects. We conclude that retinoic acid coordinates inner ear morphogenesis by controlling an FGF/Dlx signaling cascade, whose perturbation by deviations in local retinoid concentrations can lead to inner ear dysmorphogenesis.