Thalidomide [α-(N-phthalimido)glutarimide] (1) is a sedative and antiemetic drug originally introduced into the clinic in the 1950s for the treatment of morning sickness. Although marketed as entirely safe, more than 10 000 babies were born with severe birth defects. Thalidomide was banned and subsequently approved for the treatment of multiple myeloma and complications associated with leprosy. Although known for more than 5 decades, the mechanism of teratogenicity remains to be conclusively understood. Various theories have been proposed in the literature including DNA damage and ROS and inhibition of angiogenesis and cereblon. All of the theories have their merits and limitations. Although the recently proposed cereblon theory has gained wide acceptance, it fails to explain the metabolism and low-dose requirement reported by a number of groups. Recently, we have provided convincing structural evidence in support of the presence of arene oxide and the quinone-reactive intermediates. However, the ability of these reactive intermediates to impart toxicity/teratogenicity needs investigation. Herein we report that the oxidative metabolite of thalidomide, dihydroxythalidomide, is responsible for generating ROS and causing DNA damage. We show, using cell lines, the formation of comet (DNA damage) and ROS. Using DNA-cleavage assays, we also show that catalase, radical scavengers, and desferal are capable of inhibiting DNA damage. A mechanism of teratogenicity is proposed that not only explains the DNA-damaging property but also the metabolism, low concentration, and species-specificity requirements of thalidomide.