Retinoic acid inhibits transformation of cells by polyoma virus middle T oncoprotein. Inhibition of transformation results from a retinoic acid-dependent failure of cells to fully express the c-fos proto-oncogene. Retinoic acid prevents transactivation of the c-fos promoter by disrupting signaling between tyrosine kinases at the plasma membrane and trans-acting factors at the c-fos promoter. We used complementary genetic, biochemical and molecular approaches to demonstrate that: (1) phosphatidylinositol 3-kinase signaling is the principle mechanism of polyoma virus middle T oncoprotein activation of c-fos expression; (2) middle T/phosphatidylinositol 3-kinase transactivation of the c-fos promoter and transformation of cells requires activation of both the small GTP-binding protein Rac and Jun N-terminal kinase; (3) retinoic acid inhibits activation of Jun N-terminal kinase, thereby preventing c-fos transactivation and transformation; and (4) middle T activation of c-fos transcription requires both the serum response element and the promoter proximal cyclic AMP response element. These studies identify a novel target through which retinoids prevent oncogenic transformation.