A reporter cell line was established from F9 mouse teratocarcinoma cells containing the RAR beta 2 promoter coupled to the lacZ (beta-galactosidase) reporter gene. All-trans-, 9-cis-, and all-trans-4-oxoretinoic acid were equipotent in inducing cell differentiation at 1 microM, determined by induction of collagen IV mRNA expression, of morphological changes, as well as of beta-galactosidase enzyme activity. By the same criteria, beta-carotene at 10 microM also induced differentiation, but less strongly and more slowly than the retinoic acids. In contrast, the oxocarotenoid (or xanthophyll) canthaxanthin, at 10 microM, had little effect on differentiation, unless preincubated in culture medium, from which 4-oxoretinoic acid was recovered and identified as a decomposition product. This indicates that canthaxanthin can act as an effective inducer of differentiation only after breakdown to active metabolites. Likewise, beta-carotene probably also acts subsequent to breakdown to retinoic acid. Throughout these experiments the response of the RAR beta promoter-lacZ reporter gene correlated well with other parameters of differentiation, making this cell line a useful system for examination of inducers of embryonal carcinoma cell differentiation.