Prader-Willi syndrome (PWS) has a biphasic clinical phenotype with failure to thrive in the neonatal period followed by hyperphagia and severe obesity commencing in childhood, among other endocrinological and neurobehavioral abnormalities. The syndrome results from loss of function of several clustered, paternally expressed genes in chromosome 15q11-q13. PWS is assumed to result from a hypothalamic defect, but the pathophysiological basis of the disorder is unknown. We hypothesize that a fetal developmental abnormality in PWS leads to the neonatal phenotype while the adult phenotype results from a failure in compensatory mechanisms. To address this hypothesis and to better characterize the neonatal failure to thrive phenotype during postnatal life, we have studied a transgenic deletion PWS (TgPWS) mouse model that shares similarities with the first stage of the human syndrome. TgPWS mice have fetal and neonatal growth retardation associated with profoundly reduced insulin and glucagon levels. Consistent with growth retardation, TgPWS mice have deregulated liver expression of IGF system components, as revealed by quantitative gene expression studies. Lethality in TgPWS mice appears to result from severe hypoglycemia after postnatal day 2 following depletion of liver glycogen stores. Consistent with hypoglycemia, TgPWS mice appear to have increased fat oxidation. Ghrelin levels increase in TgPWS reciprocally with the falling glucose levels, suggesting that the rise in ghrelin reported in PWS patients may be secondary to a perceived energy deficiency. Together, the data reveal defects in endocrine pancreatic function as well as glucose and hepatic energy metabolism that may underlie the neonatal phenotype of PWS.