Despite the known importance of thyroid hormones (THs) in vertebrate growth and development, the role of tissue-specific TH activation in early embryogenesis remains unclear. We therefore examined the function of type 2 iodothyronine deiodinase (D2), one of the two tissue-specific enzymes catalyzing the conversion of T4 to T3, in developing zebrafish embryos (Danio rerio). Microinjection of early embryos with antisense oligonucleotides targeting either the D2 translation start site or the splice junction between the first exon and intron induced delays in development and pigmentation, as determined through the measurement of otic vesicle length, head-trunk angle, and pigmentation index at 31 h after fertilization. The antisense-induced delays in developmental progression and pigmentation were reversible through treatment with T3, suggesting that these phenotypic effects may be due to the depletion of intracellular T3 levels. Additional evidence for this hypothesis was provided by quantitative RT-PCR analysis of TH receptor-beta expression in D2 knockdown embryos, revealing a significant down-regulation of this T3-induced transcript that could be reversed by T3 treatment. Tyrosinase expression was also down-regulated in D2 knockdown embryos to a greater degree than could be predicted by the observed delay in developmental progression, suggesting that reduced D2 activity and resultant low intracellular T3 availability may directly influence pigmentation in zebrafish. These data indicate that TH activation by D2 is essential for embryonic development and pigmentation in zebrafish.