The vitamin A metabolite and transcriptional modulator retinoic acid (RA) is recognized as an important regulator of epithelial cell homeostasis in several tissues. Despite the known importance of the epithelial compartment of the thymus in T cell development and selection, the potential role of RA in the regulation of thymic cortical and medullary epithelial cell homeostasis has yet to be addressed. In this study, using fetal thymus organ cultures, we demonstrate that endogenous RA signaling promotes thymic epithelial cell (TEC) cell-cycle exit and restricts TEC cellularity preferentially in the cortical TEC compartment. Combined gene expression, biochemical, and functional analyses identified mesenchymal cells as the major source of RA in the embryonic thymus. In reaggregate culture experiments, thymic mesenchyme was required for RA-dependent regulation of TEC expansion, highlighting the importance of mesenchyme-derived RA in modulating TEC turnover. The RA-generating potential of mesenchymal cells was selectively maintained within a discrete Ly51 int gp38+ subset of Ly51+ mesenchyme in the adult thymus, suggesting a continual role for mesenchymal cell-derived RA in postnatal TEC homeostasis. These findings identify RA signaling as a novel mechanism by which thymic mesenchyme influences TEC development.