Schizophrenia is thought to be a disease of early development that ultimately affects forebrain neurons and circuits. There may be a relationship between disrupted forebrain development; malformations of the limb, face, and heart; and signaling via the steroid-like hormone retinoic acid (RA) in some schizophrenic patients. The limbs, face, heart, and forebrain all develop from sites where neural crest-derived, RA-producing mesenchyme contributes to induction and differentiation of adjacent epithelia. Induction between neural crest-derived, RA-producing mesenchyme, the anterior neural tube, and the anterior surface epithelium of the embryo guides regional differentiation and pathway formation during forebrain development. Furthermore, there are at least two mouse mutations--in the Pax-6 and Gli-3 genes--that cause peripheral malformations and specifically disrupt neural crest mediated, RA-dependent induction and differentiation in the forebrain. These observations suggest that induction might provide a common target for genes that alter morphogenesis of peripheral structures, disrupt RA-signaling, and compromise forebrain development. In the forebrain, some of these disruptions might influence the numbers or cellular properties of neurons and circuits. Such changes might be reflected in the aberrant forebrain function that characterizes schizophrenia.