For the first time in cetaceans, the development of the terminalis system and its continuity between the olfactory placode and the telencephalon has been demonstrated by light microscopy. In the early development of toothed whales (Odontoceti) this system is partially incorporated within the fila olfactoria which grow out from the olfactory placode. As the peripheral olfactory system is reduced in later stages, a strongly developed ganglionlike structure (terminalis ganglion) remains within the primitive meninx. Peripherally it is connected via the cribriform plate with ganglionic cell clusters near the septal mucosa. Centrally it is attached to the telencephalon (olfactory tubercle, septal region) by several nerve fibre bundles. In contrast to all other mammalian groups, toothed whales and dolphins are anosmatic while being totally adapted to aquatic life. Therefore the remaining ganglion and plexus must have non-olfactory properties. They may be responsible for the autonomic innervation of intracranial arteries and of the large mucous epithelia in the accessory nasal air sacs. The morphology, evolution and functional implications of the terminalis system in odontocetes and other mammals are discussed.