Harmful algal blooms (HABs) produce neurotoxins that affect human health. Developmental exposure of zebrafish embryos to the HAB toxin domoic acid (DomA) causes myelin defects, loss of reticulospinal neurons, and behavioral deficits. However, it is unclear whether DomA primarily targets myelin sheaths, leading to the loss of reticulospinal neurons, or reticulospinal neurons, causing myelin defects. Here, we show that while exposure to DomA at 2 dpf did not reduce the number of oligodendrocyte precursors prior to myelination, it led to fewer myelinating oligodendrocytes that produced shorter myelin sheaths and aberrantly wrapped neuron cell bodies. DomA-exposed larvae lacked Mauthner neurons prior to the onset of myelination, suggesting that axonal loss is not secondary to myelin defects. The loss of the axonal targets may have led oligodendrocytes to inappropriately myelinate neuronal cell bodies. Consistent with this, GANT61, a GLI1/2 inhibitor that reduces oligodendrocyte number, caused a reduction in aberrantly myelinated neuron cell bodies in DomA-exposed fish. Together, these results suggest that DomA initially alters reticulospinal neurons and the loss of axons causes aberrant myelination of nearby cell bodies. The identification of initial targets and perturbed cellular processes provides a mechanistic understanding of how DomA alters neurodevelopment, leading to structural and behavioral phenotypes.