The importance of maternal folate consumption for normal development is well established, yet the molecular mechanism linking folate metabolism to development remains poorly understood. The enzyme methionine synthase reductase (Mtrr) is necessary for utilization of methyl groups from the folate cycle. We found that a hypomorphic mutation of the mouse Mtrr gene results in intrauterine growth restriction, developmental delay, and congenital malformations, including neural tube, heart, and placental defects. Importantly, these defects were dependent upon the Mtrr genotypes of the maternal grandparents. Furthermore, we observed widespread epigenetic instability associated with altered gene expression in the placentas of wild-type grandprogeny of Mtrr-deficient maternal grandparents. Embryo transfer experiments revealed that Mtrr deficiency in mice lead to two distinct, separable phenotypes: adverse effects on their wild-type daughters' uterine environment, leading to growth defects in wild-type grandprogeny, and the appearance of congenital malformations independent of maternal environment that persist for five generations, likely through transgenerational epigenetic inheritance.