A controversial preservative that has formaldehyde-releasing properties. It works great against bacteria and also has mild fungicide abilities.
Cosmetic chemist, Colin wrote a great article about formaldehyde and DMDM Hydantoin. He writes that formaldehyde is the perfect example of "the dose makes the poison" principle. It's a natural stuff that can also be found in fresh fruits and vegetables, and eating it in tiny amounts is totally ok. However, in larger amounts (according to Wikipedia 30 mL of a solution containing 37% formaldehyde) it's deadly.
The amount of formaldehyde used in cosmetics either neat or through formaldehyde-releasing preservatives is tiny. Probably that is why the Cosmetic Ingredient Review Broad concluded both in 1988 and in 2008 that DMDM Hydantoin is "safe as used in cosmetics".
However, Colins argues that in the case of formaldehyde-releasing preservatives, formaldehyde is released slowly and the skin has probably not evolved to deal with that. The lingering formaldehyde might be toxic to the Langerhans Cells that are important for the skin's defense system. But do not forget, this is not a proven theory, it's a maybe.
All in all, it's up to you to decide if you wanna avoid formaldehyde-releasing preservatives or not. Luckily there are other, less risky and more skin-friendly options out there.