Ocular malformations are commonly observed in embryos of aquatic species after exposure to toxicants. Using zebrafish embryos as the model organism, we showed that cadmium exposure from sphere stage (4 hpf) to end of segmentation stage (24 hpf) induced microphthalmia in cadmium-treated embryos. Embryos with eye defects were then assessed for visual abilities. Cadmium-exposed embryos were behaviorally blind, showing hyperpigmentation and loss of camouflage response to light. We investigated the cellular basis of the formation of the small eyes phenotype and the induction of blindness by studying retina development and retinotectal projections. Retinal progenitors were found in cadmium-treated embryos albeit in smaller numbers. The number of retinal ganglion cells (RGC), the first class of retinal cells to differentiate during retinogenesis, was reduced, while photoreceptor cells, the last batch of retinal neurons to differentiate, were absent. Cadmium also affected the propagation of neurons in neurogenic waves. The neurons remained in the ventronasal area and failed to spread across the retina. Drastically reduced RGC axons and disrupted optic stalk showed that the optic nerves did not extend from the retina beyond the chiasm into the tectum. Our data suggested that impairment in neuronal differentiation of the retina, disruption in RGC axon formation and absence of cone photoreceptors were the causes of microphthalmia and visual impairment in cadmium-treated embryos.