Human embryos exposed to alcohol (ethanol) develop a complex developmental phenotype known as fetal alcohol spectrum disorder (FASD). In Xenopus embryos, ethanol reduces the levels of retinoic acid (RA) signaling during gastrulation. RA, a metabolite of vitamin A (retinol), is required for vertebrate embryogenesis, and deviation from its normal levels results in developmental malformations. Retinaldehyde dehydrogenase 2 (RALDH2) is required to activate RA signaling at the onset of gastrulation. We studied the effect of alcohol on embryogenesis by manipulating retinaldehyde dehydrogenase activity in ethanol-treated embryos. In alcohol-treated embryos, we analyzed RA signaling levels, phenotypes induced and changes in gene expression. Developmental defects that were characteristic of high ethanol concentrations were phenocopied by a low ethanol concentration combined with partial RALDH inhibition, whereas Raldh2 overexpression rescued the developmental malformations induced by high ethanol. RALDH2 knockdown resulted in similar RA signaling levels when carried out alone or in combination with ethanol treatment, suggesting that RALDH2 is the main target of ethanol. The biochemical evidence that we present shows that, at the onset of RA signaling during early gastrulation, the ethanol effect centers on the competition for the available retinaldehyde dehydrogenase activity. In light of the multiple regulatory roles of RA, continued embryogenesis in the presence of abnormally low RA levels provides an etiological explanation for the malformations observed in individuals with FASD.