Ethanol exposure during development causes an array of developmental abnormalities, both physiological and behavioral. In mammals, these abnormalities are collectively known as fetal alcohol effects (FAE) or fetal alcohol spectrum disorder (FASD). We have established a Drosophila melanogaster model of FASD and have previously shown that developmental ethanol exposure in flies leads to reduced expression of insulin-like peptides (dILPs) and their receptor. In this work, we link that observation to dysregulation of fatty acid metabolism and lipid accumulation. Further, we show that developmental ethanol exposure in Drosophila causes oxidative stress, that this stress is a primary cause of the developmental lethality and delay associated with ethanol exposure, and, finally, that one of the mechanisms by which ethanol increases oxidative stress is through abnormal fatty acid metabolism. These data suggest a previously uncharacterized mechanism by which ethanol causes the symptoms associated with FASD.