We describe the osteology of the new small theropod dinosaur Masiakasaurus knopfleri, from the Late Cretaceous Maevarano Formation of northwestern Madagascar. Approximately 40% of the skeleton is known, including parts of the jaws, axial column, forelimb, pelvic girdle, and hind limb. The jaws of Masiakasaurus are remarkably derived, bearing a heterodont, procumbent dentition that is unknown elsewhere among dinosaurs. The vertebrae are similar to those of abelisauroids in the reduction of the neural spine, lack of pleurocoelous fossae on the centrum, and extensively pneumatized neural arch. The limb skeleton is relatively gracile and bears numerous abelisauroid synapomorphies, including a rounded humeral head, peg-and-socket iliac-pubic articulation, prominent femoral medial epicondyle, expanded tibial cnemial crest, and double-grooved pedal unguals. The femora and tibiae show evidence of dimorphism. More specific features shared between Masiakasaurus, the Argentine Noasaurus, and the Indian Laevisuchus suggest that these taxa form a clade (Noasauridae) within Abelisauroidea. This is supported by a cladistic phylogenetic analysis of 158 characters and 23 theropod taxa. Additionally, Ceratosauria is rendered paraphyletic in favor of a sister-taxon relationship between Neoceratosauria and Tetanurae that is exclusive of Coelophysoidea. The unique dental and jaw specializations of Masiakasaurus suggest deviation from the typical theropod diet. Finally, the distribution of noasaurids further supports a shared biogeographic history between South America, Madagascar, and India into the Late Cretaceous.