The retinoic acid (RA) signaling pathway regulates axial patterning and neurogenesis in the developing central nervous system (CNS) of chordates, but little is known about its roles during peripheral nervous system (PNS) formation and about how these roles might have evolved. This study assesses the requirement of RA signaling for establishing a functional PNS in the cephalochordate amphioxus, the best available stand-in for the ancestral chordate condition. Pharmacological manipulation of RA signaling levels during embryogenesis reduces the ability of amphioxus larvae to respond to sensory stimulation and alters the number and distribution of ectodermal sensory neurons (ESNs) in a stage- and context-dependent manner. Using gene expression assays combined with immunohistochemistry, we show that this is because RA signaling specifically acts on a small population of soxb1c-expressing ESN progenitors, which form a neurogenic niche in the trunk ectoderm, to modulate ESN production during elongation of the larval body. Our findings reveal an important role for RA signaling in regulating neurogenic niche activity in the larval amphioxus PNS. Although only few studies have addressed this issue so far, comparable RA signaling functions have been reported for neurogenic niches in the CNS and in certain neurogenic placode derivatives of vertebrates. Accordingly, the here-described mechanism is likely a conserved feature of chordate embryonic and adult neural development.