During vertebrate embryogenesis, the liver develops at a precise location along the endodermal primitive gut tube because of signaling delivered by adjacent mesodermal tissues. Although several signaling molecules have been associated with liver formation, the molecular mechanism that regulates liver specification is still unclear. We previously performed a screen in medaka to isolate mutants with impaired liver development. The medaka hio mutants exhibit a profound (but transient) defect in liver specification that resembles the liver formation defect found in zebrafish prometheus (prt) mutants, whose mutation occurs in the wnt2bb gene. In addition to their liver abnormality, hio mutants lack pectoral fins and die after hatching. Positional cloning indicated that the hio mutation affects the raldh2 gene encoding retinaldehyde dehydrogenase type2 (RALDH2), the enzyme principally responsible for retinoic acid (RA) biosynthesis. Mutations of raldh2 in zebrafish preclude the development of pectoral fins. Interestingly, in hio mutants, expression of wnt2bb in the lateral plate mesoderm (LPM) directly adjacent to the liver-forming endoderm was completely lost. Conclusion: Our data reveal the unexpected finding that RA signaling positively regulates the wnt2bb gene expression required for liver specification in medaka. These results suggest that a common molecular mechanism may underlie liver and pectoral fin specification during piscine embryogenesis.