Plastic responses of embryos to developmental environments can shape phenotypes in ways that impact fitness. The mechanisms by which developmental conditions affect offspring phenotypes vary substantially among taxa and are poorly understood in most systems. In this study, we evaluate the effects of thermal and hydric conditions on patterns of egg water uptake, embryonic development and yolk metabolism in embryos of the lizard Anolis sagrei to gain insights into how these factors shape morphological variation in hatchlings. Our 3 × 2 experimental design (3 thermal and 2 hydric conditions) revealed that developmental temperature has strong effects on rates of development and yolk metabolism, but the impacts of moisture were minimal. Increased water uptake by eggs under relatively wet conditions resulted in larger hatchlings with less internalized residual yolk than hatchlings from dry-incubated eggs. However, the relatively small phenotypic differences among treatments may have small fitness consequences. These results demonstrate that embryos of A. sagrei can tolerate a broad range of environmental conditions without substantial impacts on critical morphological traits. Such embryonic tolerances may facilitate colonization and establishment in novel environments. © 2011 The Linnean Society of London, Biological Journal of the Linnean Society, 2012, 105, 25–41.