Most caterpillars will not sting you, but it's not a good idea to pick them up, because you could hurt them. A few will make you wish you'd never even thought about touching them. And strangely, they are the prettiest and most interesting of the many caterpillar species.
The saddleback moth caterpillar, Sibine stimuli, pictured above has a 'face' that scares off many a potential predator. Yet it will also send you a definite message that it is unhappy with your sticky fingers on it. In a purely defensive tactic it will give you a sting that will dissuade you from picking up another. You can see the ‘horns’ that the caterpillar has on each end of its body – these are barbed spines which are also known as urticating setae.
You'll have to click the link to see the saddleback moth caterpillar's face, since the picture above doesn't make it clear which way it's facing. It's only one of a dozen or so caterpillar species that look great -go ahead, take a picture if you see one, but don't touch them, at Ark in Space. -via Everlasting Blort
(Image credit: Flickr user Lisa Brown)
That was already my policy, though it essentially leaves only hornworms and inchworms. I can recognize a gypsy moth caterpillar, though, and they're safe, at least to toss on a hard surface and squish, 'cause they're a real problem to many forests.