Retinoic acid (RA) generated in the mesoderm of vertebrate embryos controls body axis extension by downregulating Fgf8 expression in cells exiting the caudal progenitor zone. RA activates transcription by binding to nuclear RA receptors (RARs) at RA response elements (RAREs), but it is unknown whether RA can directly repress transcription. Here, we analyzed a conserved RARE upstream of Fgf8 that binds RAR isoforms in mouse embryos. Transgenic embryos carrying Fgf8 fused to lacZ exhibited expression similar to caudal Fgf8, but deletion of the RARE resulted in ectopic trunk expression extending into somites and neuroectoderm. Epigenetic analysis using chromatin immunoprecipitation of trunk tissues from E8.25 wild-type and Raldh2(-/-) embryos lacking RA synthesis revealed RA-dependent recruitment of the repressive histone marker H3K27me3 and polycomb repressive complex 2 (PRC2) near the Fgf8 RARE. The co-regulator RERE, the loss of which results in ectopic Fgf8 expression and somite defects, was recruited near the RARb RARE by RA, but was released from the Fgf8 RARE by RA. Our findings demonstrate that RA directly represses Fgf8 through a RARE-mediated mechanism that promotes repressive chromatin, thus providing valuable insight into the mechanism of RA-FGF antagonism during progenitor cell differentiation.