In historical attempts to treat morning sickness, use of the drug thalidomide led to the birth of thousands of children with severe birth defects. Despite their teratogenicity, thalidomide and related IMiD drugs are now a mainstay of cancer treatment; however, the molecular basis underlying the pleiotropic biology and characteristic birth defects remains unknown. Here we show that IMiDs disrupt a broad transcriptional network through induced degradation of several C₂H₂ zinc finger transcription factors, including SALL4, a member of the spalt-like family of developmental transcription factors. Strikingly, heterozygous loss of function mutations in SALL4 result in a human developmental condition that phenocopies thalidomide-induced birth defects such as absence of thumbs, phocomelia, defects in ear and eye development, and congenital heart disease. We find that thalidomide induces degradation of SALL4 exclusively in humans, primates, and rabbits, but not in rodents or fish, providing a mechanistic link for the species-specific pathogenesis of thalidomide syndrome.