A simple food chain (plant, insect pests, and predatory arthropods) in an agro-ecosystem was set up here as a model system to elucidate the potential effect of transgenic Bacillus thuringiensis (Bt) cotton on non-target organisms. The system included transgenic/non-transgenic cotton, neonate larvae of three herbivorous insects (Spodoptera exigua, Helicoverpa armigera, and S. litura), and predatory lacewing larvae (Chrysopa spp.), which represent the first, second, and third trophic levels, respectively. The results showed that transgenic treatments and different densities of prey had significant effects on both body-weight gain of neonate herbivorous larvae and the number of prey captured by lacewing larvae, respectively. It was found that Bt toxin could persist at the third trophic level in lacewing larvae. The diet mixture bioassay showed that body-weight gain of lacewing larvae was significantly affected by various treatments, especially at lower concentrations of plant-expressed Bt toxin in the diet mixture, which caused significant decreases in body-weight gain. In contrast, synthetic Bt toxin at higher concentrations in the diet did not show this effect. Thus, we inferred that Bt toxin indirectly affected the growth of the lacewings and the lacewings may not be susceptible to Bt toxin or are able to metabolize it.