Wow. Saying that Nintendo not partnering with sony was their biggest mistake just does not make sense at this day and age. It's just silly ("MAYBE" back then it was). I love when people forget about the Wii and DS success. Imagine having to pay royalties to sony for all those sales. Just think about all the Nintendo games that have sold more than 10 million copies in the past half decade.

If you had to point to one mistake the virtual boy would be it.

I agree with RolStoppable too

Nintendo's biggest mistake:

Hiroshi Yamauchi

You really don't know what you are talking about.

 When the NES was about to be released in america the NoA president at time was really skeptical about the console's potential, Yamauchi with great business vision insisted in releasing it. This industry has yet to see something as big as the NES was and Nintendo became an established name in the video games business.

This. 

It was well known that Square was pandering to Nintendo for a CD based console after their development team went too far and could no longer fit Final Fantasy VII on a cartridge (well, they could have except it would have been incredibly expensive). After rejecting Square's request, they not only jumped ship to the PlayStation, but also convinced felly 3rd party developers Namco and Capcom to do the same.

Square then went on to have the 2nd biggest selling title on the PSX, which would have been on the N64 had Nintendo played their cards right. Third parties would not have taken such big risks with the Playstation due to their inexperience in the market, and with Nintendo already wiping the floor with so many other consoles (particularly those released by electronics companies), a CD based Nintendo 64 would have had thord parties thinking "The playStation will just end up like the Panasonic 3DO, the NEC PCFX, the SNK Neo Geo, the Atari Jaguar or the Amiga CD32. The list of consoles that the SNES destroyed was incredible!

Hiroshi Yamauchi

You have to remember that Squaresoft and Nintendo were really close during the NES and SNES era.  Their US headquarters were in Redmond, Washington, right next to Nintendo's own US headquarters.  Those relations soured with the deal with Sony and Squaresoft also had their own ambitions beyond videogames (ie movies).  Yamauchi didn't want to help them in any way after the initial break.

"To show mercy is to show proof of your imperfection!"

Oh yes. And after that, he brought the CD Drive for Super Nintendo - no -, Virtual Boy, Cartridges on N64, Rareware (bye bye)... yep yep yep.

Nintendo's biggest mistake:

Hiroshi Yamauchi.

I hate when people claim the biggest mistake Nintendo ever made was breaking their deal with Sony. These people clearly have no idea what the terms of that deal were. Sony was going to get the licensing royalties for the format, not Nintendo, which may as well have been a competing product since the machine was going to be a stand alone rather than an add-on. Basically, they were trying to convince Nintendo to let them manufacture SNES consoles and give their royalties over to Sony. If that sounds like a good deal to you, you're crazy. Sony was trying to break into the console business by riding Nintendo's success, and they would have made their own system by the next generation and cut Nintendo out altogether.

So no, it wasn't Nintendo's biggest mistake. It didn't create a competitor, it kept their competitor to be from riding a huge wave of success off of Nintendo's efforts. They couldn't stop Sony from taking the #1 position in the industry, and partnering with them wasn't going to change that. Dealing with Sony at all may have been a huge mistake, walking away from that terrible deal was not.

So the correct answer is the Virtual Boy.

ChichiriMuyo is 100% correct.

Sony basically attempted to screw Nintendo over by trying to obtain royalties that were simply not theirs.

I've said it before, and i'll say it again............. how can some of you people worship a common crook like Ken Kuturagi?

I'd say the subsequent fact that Sony bought a good chunk of Square's stock, and convinced them that FMV type games that wasted tons of space were the only way to go.

Of course, Hiroshi saying that RPGs are for depressed people sitting in dark rooms and playing slow games didn't help, either.

Memory is kinda funny on this one but wasn't there some bad blood between Square and Nintendo because Square went with Sony?  I mean until the Gamecube when they tried to make amends by giving them the half assed Crytal Chronicles series?  I'll see if I can dig up something concrete.

*goes to Google*

*edit* just Google "bad blood between Square and Nintendo" and 10,000 articles mention it.  It may actually be unfounded.  I didn't actually read any of them.  I'm a busy, busy man, you know.  It does appear to be common knowledge, though.

Here's what it said in Wikipedia when I looked up FFVII (last sentence, mostly): Development of Final Fantasy VII resumed in late 1995,^[30] and required the efforts of approximately 120 artists and programmers, using PowerAnimator and Softimage|3D software.^[44] It was the most expensive video game in its time, with a budget of around US$45 million,^[45] equivalent to $64 million in 2012.^[46] Final Fantasy VI's co-director and event planner, Kitase, returned to direct and co-write Final Fantasy VII and was concerned the franchise might be left behind if it did not catch up to the 3D computer graphics used in other games at the time.^[47] Production began after the making of a short, experimental tech demo called "Final Fantasy SGI" for Silicon Graphics, Inc. Onyx workstations. The demo featured polygon-based 3D renderings of characters from Final Fantasy VI in a real time battle.^[48] This experiment led the development team to integrate these design mechanics into Final Fantasy VII. However, as a result of the high quantity of memory storage required to implement the motion data, only the CD-ROM format would be able to suit the project's needs.^[30] Nintendo, for which Square had developed all previous titles in the Final Fantasy series, had decided to continue to use cartridges for its upcoming Nintendo 64 console. This eventually led to a dispute that resulted in Square ending its long, tumultuous relationship with Nintendo, and Square announced on January 12, 1996 it would be developing Final Fantasy VII for Sony's PlayStation platform.^[49]