Phosphatized microfossils in the Ediacaran (635-542 Myr ago) Doushantuo Formation, south China, have been interpreted as the embryos of early animals. Despite experimental demonstration that embryos can be preserved, microstructural evidence that the Doushantuo remains are embryonic and an unambiguous record of fossil embryos in Lower Cambrian rocks, questions about the phylogenetic relationships of these fossils remain. Most recently, some researchers have proposed that Doushantuo microfossils may be giant sulphur-oxidizing bacteria comparable to extant Thiomargarita sp. Here we report new observations that provide a test of the bacterial hypothesis. The discovery of embryo-like Doushantuo fossils inside large, highly ornamented organic vesicles (acritarchs) indicates that these organisms were eukaryotic, and most probably early cleavage stage embryos preserved within diapause egg cysts. Large acanthomorphic microfossils of the type observed to contain fossil embryos first appear in rocks just above a 632.5 +/- 0.5-Myr-old ash bed, suggesting that at least stem-group animals inhabited shallow seas in the immediate aftermath of global Neoproterozoic glaciation.