Exposure of the developing conceptus to selected environmental agents can lead to deleterious and often times lethal birth defects. These malformations result in serious emotional and financial consequences to families and societies worldwide. As we continue to progress technologically, we face challenges from the introduction of new pharmacological agents and chemical compounds into the environment. This results in a concomitant need to more fully understand the relationship between in utero exposure to environmental teratogens and the risk of congenital malformations. The goal of this review is to provide a current perspective of the major concepts related to the molecular basis of environmentally induced birth defects. Starting with a discussion of commonly occurring birth defects, we consider important fundamental facets of embryonic development, teratology, and gene-environment interactions. The review then summarizes our current understanding of the molecular mechanisms involved in selected birth defects following exposure to pharmacological compounds, including thalidomide, retinoids, and valproic acid. Understanding these signaling pathways may lead to the development of safer pharmaceutical compounds and a reduction in the number of infants born with preventable birth defects.