Mutant mice bearing a targeted disruption of the heparan sulfate (HS) modifying enzyme GlcNAc N-deacetylase/N-sulfotransferase 1 (Ndst1) exhibit severe developmental defects of the forebrain and forebrain-derived structures, including cerebral hypoplasia, lack of olfactory bulbs, eye defects and axon guidance errors. Neural crest-derived facial structures are also severely affected. We show that properly synthesized heparan sulfate is required for the normal development of the brain and face, and that Ndst1 is a modifier of heparan sulfate-dependent growth factor/morphogen signalling in those tissues. Among the multiple heparan sulfate-binding factors potentially affected in Ndst1 mutant embryos, the facial phenotypes are consistent with impaired sonic hedgehog (Shh) and fibroblast growth factor (Fgf) interaction with mutant heparan sulfate. Most importantly, the data suggest the possibility that defects in heparan sulfate synthesis could give rise to or contribute to a number of developmental brain and facial defects in humans.