Cyclophosphamide (CP) is one of the best studied teratogens; it produces primarily central nervous system and skeletal anomalies in rats, mice, rabbits, monkeys, and humans. Furthermore, CP is one of the most extensively studied antineoplastic agents. Recent work using in vitro rodent embryo culture has demonstrated that CP must be bioactivated to be teratogenic. This finding extends earlier work showing that CP must be activated to achieve its antineoplastic and mutagenic effects. Activation of CP to its teratogenic, mutagenic, and antineoplastic form is mediated by microsomal cytochrome P-450 monooxygenases, which convert CP to 4-hydroxycyclophosphamide (4OHCP). In the absence of detoxification, 4OHCP spontaneously breaks down to phosphoramide mustard (PM) and acrolein (AC). PM is the CP metabolite believed to be responsible for the antineoplastic and mutagenic effects of CP, whereas AC is thought to cause the side effects associated with CP chemotherapy. Recent work has shown that the teratogenic effects of CP are mediated by both PM and AC. Although it is far from proven, available evidence supports the hypothesis that DNA is the primary target in terms of the teratogenic, mutagenic, and antineoplastic effects of CP. Although the nature of the DNA lesions produced by CP, which are responsible for its teratogenic, mutagenic, and antineoplastic effects, is not completely understood, cross-linking of DNA seems to play a critical role in the antineoplastic properties of CP. Preliminary information obtained from embryos exposed to CP metabolites suggests that, although DNA cross-linking might play a role in CP teratogenesis, metabolite-induced DNA strand breakage and/or induction of mutations might also play a role. Although insights into the molecular mechanisms underlying CP teratogenesis are just beginning to accumulate, the availability of in vitro embryo culture combined with the modern armamentarium of molecular biology will allow teratologists to probe further the molecular aspects of teratogenesis.