The effect of retinoic acid on the synthesis and degradation of basement membrane components by endoderm cells derived from mouse embryonal carcinoma (EC) cells was studied in a serum-free, defined medium. By immunofluorescence these cells accumulate type IV collagen, laminin, and fibronectin after growth in media containing epidermal growth factor (EGF), fibroblast growth factor (FGF), insulin, transferrin, and Pedersen fetuin. Collagen accounted for 2 to 4% of the newly synthesized proteins, of which 90% were found in the culture media. This collagen was identified as Pro-type IV be gel electrophoresis and enzymatic susceptibility. The EC cells preferentially attached to type IV collagen in vitro and such attachment was mediated by laminin. Treatment of EC cells with retinoic acid caused an increased accumulation of collagen (10 to 15% of secreted proteins) and also stimulated the elaboration of latent protease which degraded laminin and type IV collagen. The laminin-degrading activity was plasminogen dependent. The type IV collagen-degrading activity was a metal protease which could be activated by trypsin or plasmin. It is likely that at least part of the laminin degrading activity is plasmin (mediated through plasminogen activator), since highly purified plasmin is shown to degrade native laminin.