Fetal alcohol spectrum disorder (FASD) is the most common preventable cause of mental retardation in the USA. Ethanol impairs neuronal survival and function by two major mechanisms: 1) it inhibits insulin signaling required for viability, metabolism, synapse formation, and acetylcholine production; and 2) it functions as a neurotoxicant, causing oxidative stress, DNA damage and mitochondrial dysfunction. Ethanol inhibition of insulin signaling is mediated at the insulin receptor (IR) level and caused by both impaired receptor binding and increased activation of phosphatases that reverse IR tyrosine kinase activity. As a result, insulin activation of PI3K-Akt, which mediates neuronal survival, motility, energy metabolism, and plasticity, is impaired. The neurotoxicant effects of ethanol promote DNA damage, which could contribute to mitochondrial dysfunction and oxidative stress. Therefore, chronic in utero ethanol exposure produces a dual state of CNS insulin resistance and oxidative stress, which we postulate plays a major role in ethanol neurobehavioral teratogenesis. We propose that many of the prominent adverse effects of chronic prenatal exposure to ethanol on CNS development and function may be prevented or reduced by treatment with peroxisome-proliferated activated receptor (PPAR) agonists which enhance insulin sensitivity by increasing expression and function of insulin-responsive genes, and reducing cellular oxidative stress.