Distraction osteogenesis (DO) is used to treat specific disorders associated with growth abnormalities and/or loss of bone stock secondary to trauma or disease. However, a high rate of complications and discomfort hamper its further application in clinical practice. Here, we investigated the effects of all-trans retinoic acid (ATRA) on osteogenic differentiation of rat bone marrow-derived mesenchymal stem cells (rBMSCs) and bone consolidation in a rat DO model. Different doses of ATRA were used to treat rBMSCs. Cell viability and osteogenic differentiation were assessed using CCK-8 and alkaline phosphatase staining, respectively. The mRNA expression of osteogenic differentiation-genes (including ALP, Runx2, OCN, OPN, OSX, and BMP2) and angiogenic genes (including VEGF, HIF-1, FLK-2, ANG-2, and ANG-4) were determined by quantitative real-time PCR analysis. Further, we locally injected ATRA or PBS into the gap in the rat DO model every 3 days until termination. X-rays, micro-computed tomography (Micro-CT), mechanical testing, and immunohistochemistry stains were used to evaluate the quality of the regenerates. ATRA promoted osteogenic differentiation of rBMSCs. Moreover, ATRA elevated the mRNA expression levels of osteogenic differentiation-genes and angiogenic genes. In the rat model, new bone properties of bone volume/total tissue volume and mechanical strength were significantly higher in the ATRA-treatment group. Micro-CT examination showed more mineralized bone after the ATRA-treatment, and immunohistochemistry demonstrated more new bone formation after ATRA-treatment than that in the PBS group. In conclusion, as a readily available and very cost effective bio-source, ATRA may be a novel therapeutic method to enhance bone consolidation in the clinical setting.