The retinoic acid-inducible dehydrogenase reductase 3 (DHRS3) is thought to function as a retinaldehyde reductase that controls the levels of all-trans-retinaldehyde, the immediate precursor for bioactive all-trans-retinoic acid. However, the weak catalytic activity of DHRS3 and the lack of changes in retinaldehyde conversion to retinol and retinoic acid in the cells overexpressing DHRS3undermine its role as a physiologically important all-transretinaldehyde reductase. This study demonstrates that DHRS3 requires the presence of retinol dehydrogenase 10 (RDH10) to display its full catalytic activity. The RDH10-activated DHRS3 acts as a robust high affinity all-trans-retinaldehyde-specific reductase that effectively converts retinaldehyde back to retinol, decreasing the rate of retinoic acid biosynthesis. In turn, the retinol dehydrogenase activity of RDH10 is reciprocally activated by DHRS3. At E13.5, DHRS3-null embryos have ∼4-fold lower levels of retinol and retinyl esters, but only slightly elevated levels of retinoic acid. The membrane-associated retinaldehyde reductase and retinol dehydrogenase activities are decreased by ∼4- and ∼2-fold, respectively, in Dhrs3-/- embryos, and Dhrs3-/- mouse embryonic fibroblasts exhibit reduced metabolism of both retinaldehyde andretinol. NeitherRDH10norDHRS3has to be itself catalytically active to activate each other. The transcripts encoding DHRS3 and RDH10 are co-localized at least in some tissues during development. The mutually activating interaction between the two related proteins may represent a highly sensitive and conserved mechanism for precise control over the rate of retinoic acid biosynthesis. © 2014 by The American Society for Biochemistry and Molecular Biology, Inc. Published in the U.S.A.