A study was undertaken to analyze the ultrastructural aspects and the enzyme acid phosphatase cytochemistry and biochemistry of the pathogenesis of cyclophosphamide (CP)-induced cleft palate in hamster fetuses. The initial CP-induced alterations were the appearance of lysosomes in the mesenchymal cells of the vertically developing palatal primordia within 8 hr of drug administration. The mesenchymal lysosomal activity, which increased during the next 16 hr, was abnormal and interpreted as a sub-lethal response to CP treatment. Subsequently, the lysosomal activity in the mesenchyme diminished gradually and, 48 hr after CP treatment, was absent. At this time, lysosomes were seen in the epithelial cells of the vertical palate. Fifty-six hours after CP treatment, unlike controls where palatal shelves were already fused, lysosomal activity subsided in the epithelial cells. Changes, however, continued to be seen at the epithelial-mesenchymal interface. These changes were characterized by discontinuity in the basal lamina, and by epithelial-mesenchymal contacts. They persisted for 8 hr but were absent thereafter. Sixty-four hours after CP administration, the vertical shelves became horizontal and remained so until term. Following analysis of data, both from the literature and from the present study, it was suggested that CP first affected mesenchymal cell proliferation, and then its cytodifferentiation, during the critical phase of early vertical development; consequently the reorientation of the shelves to a horizontal plane was delayed, inducing cleft palate.