Cyclopamine is a steroidal alkaloid which causes limb and craniofacial defects in many vertebrate species. We have used Xenopus laevis as a model system to characterize the defects caused by cyclopamine at the cellular level. The most dramatic consequence of cyclopamine treatment in the Xenopus embryo is a defect in formation of craniofacial cartilage. Much of this cartilage is absent in treated animals. As in avian and mammalian species, Xenopus craniofacial cartilage is derived primarily from cells of the cranial neural crest. Grafting experiments show that development of the cartilaginous derivatives of the cranial neural crest is impaired after cyclopamine treatment, and this is at least partially due to a direct effect on presumptive crest cells. A culture system was used to determine the cellular response to the drug. Cyclopamine did not block the initial emigration of cells from a neural plate explant. However, cell death is seen in treated cultures after 4 days. Trunk neural crest cells and transformed cell lines are resistant to cyclopamine. We therefore conclude that cyclopamine specifically causes death of cranial neural crest cells and that lethality is likely to account for the teratogenic effects of this compound.