DMDM hydantoin is an antimicrobial agent and preservative. It increases the shelf-life of cosmetics (e.g. shampoos, skincare products, hair gels, etc) by "releasing" formaldehyde and thus killing bacteria. This keeps cosmetics sanitary, and prevents illness due to infections.
The Environmental Working Group (EWG) lists the hazard level of DMDM hydantoin at moderate/high. It is not known to cause developmental and reproductive toxicity, and has a low risk of being a carcinogen. The chemical may be a problem in people who are allergic to formaldehyde, and can increase the risk of developing a formaldehyde allergy. The most common type of allergy is a skin allergy.
As of 2005 however, the independent Cosmetic Ingredient Review panel (established in 1976) lists DMDM hydantoin as a "safe" ingredient . The benefits outweigh the risks, especially at the low levels that are found in most cosmetics:
"The CIR Expert Panel has reviewed the safety of formaldehyde in cosmetics and personal care products and concluded that it was safe to a great majority of consumers but has limited the concentration to 0.2% free formaldehyde due to the skin sensitivity of some individuals to this agent. The amount of DMDM Hydantoin required to preserve a product (less than 1%) does not expose the consumer to concentrations of formaldehyde above the 0.2% limit for formaldehyde recommended by the CIR Expert Panel."
So unless someone is very sensitive to formaldehyde, this is a generally safe chemical. It is poorly absorbed by the skin, and there are no adverse effects from oral exposure . Nevertheless, when finding toiletries (e.g. baby wipes, sunscreen, etc) for babies and young children, it might be a good idea to stick to preservatives that are associated with fewer complications.