The mechanism of the in vitro inhibition of Ca2+-, phosphatidylserine-dependent protein kinase C (PK-C)2 by the purified holo (ligand-saturated) forms of cellular retinol-binding protein (cRBP) and cellular retinoic acid-binding protein (cRABP) was studied. We report here that the PK-C-inhibitory action of holo-cRBP and holo-cRABP is due to their respective ligands, all-trans-retinol and all-trans-retinoic acid; the reduced phosphorylation of the holo-retinoid-binding proteins and brain cytosolic proteins is not the result of a retinoid-induced soluble phosphatase or protease activity; retinoids reduce PK-C affinity for calcium and phosphatidylserine in vitro; and the structure-function activity of the retinoids and the specific interaction of these compounds with their binding proteins are important in blocking the activity of PK-C. These observations suggest that the inhibitory effect of retinoids on plasma membrane-associated PK-C activity pays a significant role in defining the early epigenetic aspects of PK-C-dependent tumor promotion and may be a physiological mechanism by which retinoids induce terminal differentiation in cell types that do not express soluble retinoid-binding proteins.