Mouse genetic studies have defined a set of signaling molecules and transcription factors that are necessary to induce the forebrain. Here we describe an ENU-induced mouse mutation, nearly headless (nehe), that was identified based on the specific absence of most of the forebrain at midgestation. Positional cloning and genetic analysis show that, unlike other mouse mutants that disrupt specification of the forebrain, the nehe mutation disrupts mitochondrial metabolism. nehe is a hypomorphic allele of Lipoic acid Synthetase (Lias), the enzyme that catalyzes the synthesis of lipoic acid, an essential cofactor for several mitochondrial multienzyme complexes required for oxidative metabolism. The defect in forebrain development in nehe mutants is apparent as soon as the forebrain is specified, without a concomitant increase in apoptosis. Two tissues required for forebrain specification, the anterior visceral endoderm and the anterior definitive endoderm, develop normally in nehe mutants. However, a third head organizer tissue, the prechordal plate, fails to express markers of cell type determination and shows abnormal morphology in the mutants. We find that the level of phosphorylated (active) AMPK, a cellular energy sensor that affects cell polarity, is up-regulated in nehe mutants at the time when the prechordal plate is normally specified. The results suggest that the nehe phenotype arises because high levels of energy production are required for the specialized morphogenetic movements that generate the prechordal plate, which is required for normal development of the mammalian forebrain. We suggest that a requirement for high levels of ATP for early forebrain patterning may contribute to certain human microcephaly syndromes.