There is increasing concern that paternal exposure to toxic chemicals impacts negatively on progeny outcome. Exposure of male rats to a model male-mediated developmental toxicant and anticancer alkylating agent, cyclophosphamide, resulted in increased pre- and post-implantation loss, as well as in malformations. We hypothesize that the stage specificity of the effects of paternal cyclophosphamide exposure on progeny depends on the ability of germ cells to respond to stress, repair DNA or undergo apoptosis. Acute high dose exposure of male rats to cyclophosphamide increased the expression of heat shock proteins and DNA repair genes, predominantly in round spermatids. In contrast, chronic low dose treatment dramatically decreased the expression of stress response genes in pachytene spermatocytes and round spermatids, but not in elongated spermatids; this reduced ability to respond to stress may allow damage to accumulate, resulting in altered sperm function. Increased DNA damage was maximal 3 weeks after drug exposure, during spermiogenesis, a key point in sperm chromatin remodelling. Drug exposure for 9 weeks increased the frequency of spermatozoa with chromosome 4 disomy and nullisomy. DNA damage found in cyclophosphamide-exposed spermatozoa was imparted to the newly fertilized zygote. Drug-exposed spermatozoa decondensed more rapidly than control spermatozoa and male pronuclear formation was earlier. RNA synthesis was higher in 1-cell embryos sired by drug-treated fathers than in controls. Significantly, the profile of gene expression was altered in embryos sired by drug-treated males as early as the 1-cell stage. Thus, exposure of male rats to cyclophosphamide altered male germ cell quality with a consequent temporal and spatial disruption of the zygotic genome activation.