Fluorescence changes using actin covalently labeled with N-(1-pyrenyl)iodoacetamide have been used to determine the effect of cytochalasin D on actin polymerization. A mechanism for the effect of cytochalasin D on actin polymerization is presented, which explains the experimental observation of a cytochalasin D-induced increase in the initial rate of polymerization and a decrease in the final extent of the reaction. Central to this mechanism is the Mg2+-dependent formation of cytochalasin D-induced dimers. The dimers serve as nuclei to enhance the polymerization rate. Binding of Mg2+ to a low affinity site on the dimer induces a conformational change which can be observed as a rapid fluorescence increase. A subsequent time-dependent fluorescence decrease observed prior to polymerization appears to represent ATP hydrolysis resulting in dissociation of the dimer and release of actin monomers containing ADP. We postulate that a slow rate of exchange of ATP for bound ADP relative to hydrolysis results in the accumulation of monomers containing ADP. As these monomers have a high critical concentration, the final extent of polymerization is reduced dramatically. The Mg2+ dependence of the final extent of polymerization in the presence of cytochalasin D is also explained in the context of this mechanism.