Congenital malformations are the leading cause of death in infants of insulin-dependent diabetic mothers. Although there are data to suggest that hyperglycemia itself is teratogenic, few mechanisms have been proposed to explain diabetic embryopathy. To address the possibility that DNA mutations play a role in the fetal malformations associated with diabetes, we developed a transgenic mouse model system to measure the mutation frequency of a neutral target gene, lacI, during embryonic development in a maternal hyperglycemic environment. Despite the short 21-day gestational period of the mouse, we observed a twofold increase in the mutant frequency of the lacI transgene in fetuses that developed in a mild diabetic environment (blood glucose > 8.3 mmol/l) compared with those that developed under normoglycemic conditions (blood glucose < 8.3 mmol/l). These data provide the first direct evidence of the genotoxic effect of diabetes in vivo and suggest a mechanism for the teratogenicity of the maternal diabetic environment.