Ethanol exposure during development is teratogenic. The central nervous system (CNS) is particularly susceptible to ethanol toxicity. In fact, heavy gestational ethanol consumption is one of the leading known causes of mental retardation in the Western world. Ethanol exposure disrupts the proliferation of glia and neuronal precursors in the developing CNS. Depending upon cell population and blood ethanol concentration, ethanol can either inhibit or stimulate cell proliferation. Two features of cell proliferation that are affected by ethanol exposure are the growth fraction (the proportion of cells that is actively cycling) and the cell cycle kinetics, particularly in the length of the G1 phase of the cell cycle. Cell proliferation in the developing CNS reflects the action of positive (mitogenic growth factors) and negative (anti-proliferative factors) regulators. Increasing evidence shows that ethanol interferes with the action of growth factors. In vitro systems are a good model to investigate ethanol neurotoxicity, since the effects of ethanol on cultured cells parallel the effects of ethanol in the developing CNS. The inhibitory effects of ethanol on cell proliferation may result from interference with mitogenic growth factors (e.g., bFGF, EGF, PDGF, IGF-I). Conversely, the stimulatory effects of ethanol may result from the interference with growth inhibiting factors (e.g., TGFbeta1). Interestingly, both in vivo and in vitro studies show that proliferating neural cells display differential sensitivity to ethanol. This differential sensitivity correlates with their response to mitogenic growth factors; that is, cells that are actively regulated by mitogenic growth factors are much more susceptible to ethanol than cells that are less or unresponsive to such factors. Ethanol interference with growth factor action could occur at three levels: ligand production, receptor expression, and/or signal transduction. Thus, ethanol-induced alterations in the developing CNS that characterize fetal alcohol syndrome apparently result from alterations in the regulatory action of growth factors.