The developing vertebrate embryo is exquisitely sensitive to retinoic acid (RA) concentration, particularly during anteroposterior patterning. In contrast to Nodal and Wnt signaling, RA was not previously considered to be an instructive signal in mesoderm formation during gastrulation. Here, we show in Xenopus that RARγ is indispensable for the expression of early mesoderm markers and is, therefore, an obligatory factor in mesodermal competence and/or maintenance. We identified several novel targets upregulated by RA receptor signaling in the early gastrula that are expressed in the circumblastoporal ring and linked to mesodermal development. Despite overlapping expression patterns of the genes encoding the RA-synthesizing enzyme Aldh1a2 and the RA-degrading enzyme Cyp26a1, RARγ1 functions as a transcriptional activator in early mesoderm development, suggesting that RA ligand is available to the embryo earlier than previously appreciated. RARγ1 is required for cellular adhesion, as revealed by spontaneous dissociation and depletion of ncam1 mRNA in animal caps harvested from RARγ1 knockdown embryos. RARγ1 knockdown obliterates somite boundaries, and causes loss of Myod protein in the presomitic mesoderm, but ectopic, persistent expression of Myod protein in the trunk. Thus, RARγ1 is required for stabilizing the mesodermal fate, myogenic commitment, somite boundary formation, and terminal skeletal muscle differentiation.