Thalidomide is a teratogen with anti-angiogenic properties and causes stunted limb growth (dysmelia) during human embryogenesis. The molecular mechanisms of thalidomide action in embryopathy are currently unknown. Using the endothelial-specific antigen platelet endothelial cell adhesion molecule-1 and confocal laser scanning microscopy we have demonstrated that thalidomide exerts anti-angiogenic effects on the development of capillary structures in embryoid bodies differentiated from murine embryonic stem cells. Consequently, in thalidomide-treated embryoid bodies the diffusion properties of the tissue were deteriorated. Thalidomide raised reactive oxygen species (ROS), as revealed using 2'7'-dichlorodihydrofluorescein diacetate (H(2)DCF-DA) as an indicator. A comparable ROS generation was achieved with the thalidomide hydrolysis product phthaloyl glutamic acid (PGA), but not with phthalimide (PI), the major component of thalidomide. ROS formation by thalidomide was inhibited by the hydroxyl radical scavengers mannitol and 2-mercaptoethanol. After coadministration of either 2-mercaptoethanol or mannitol with thalidomide the anti-angiogenic effects of thalidomide were abolished and the diffusion properties of the tissue were restored to the control values. In summary, our data suggest that thalidomide exerts its anti-angiogenic properties via the generation of toxic hydroxyl radicals, which impair vasculogenesis and angiogenesis during embryoid body development.