Retinoids, and in particular retinoic acid (RA), are known to induce posterior fates in neural tissue. However, alterations in retinoid signalling dramatically affect anterior development. Previous reports have demonstrated a late role for retinoids in patterning craniofacial and forebrain structures, but an earlier role in anterior patterning is not well understood. We show that enzymes involved in synthesizing retinoids are expressed in the avian hypoblast and in tissues directly involved in head patterning, such as anterior definitive endoderm and prechordal mesendoderm. We found that in the vitamin A-deficient (VAD) quail model, which lacks biologically active RA from the first stages of development, anterior endodermal markers such as Bmp2, Bmp7, Hex and the Wnt antagonist crescent are affected during early gastrulation. Furthermore, prechordal mesendodermal and prospective ventral telencephalic markers are expanded posteriorly, Shh expression in the axial mesoderm is reduced, and Bmp2 and Bmp7 are abnormally expressed in the ventral midline of the neural tube. At early somite stages, VAD embryos have increased cell death in ventral neuroectoderm and foregut endoderm, but normal cranial neural crest production, whereas at later stages extensive apoptosis occurs in head mesenchyme and ventral neuroectoderm. As a result, VAD embryos end up with a single and reduced telencephalic vesicle and an abnormally patterned diencephalon. Therefore, we propose that retinoids have a dual role in patterning the anterior forebrain during development. During early gastrulation, RA acts in anterior endodermal cells to modulate the anteroposterior (AP) positional identity of prechordal mesendodermal inductive signals to the overlying neuroectoderm. Later on, at neural pore closure, RA is required for patterning of the mesenchyme of the frontonasal process and the forebrain by modulating signalling molecules involved in craniofacial morphogenesis.