One line of mice harboring a cardiac-specific epoxygenase transgene developed head swelling and rapid neurological decline in young adulthood, and had marked hydrocephalus of the lateral and third ventricles. The transgene was found to be inserted into an intron in the mouse Rfx4 locus. This insertion apparently prevented expression of a novel variant transcript of RFX4 (RFX4_v3), a member of the regulatory factor X family of winged helix transcription factors. Interruption of two alleles resulted in profound failure of dorsal midline brain structure formation and perinatal death, presumably by interfering with expression of downstream genes. Interruption of a single allele prevented formation of the subcommissural organ, a structure important for cerebrospinal fluid flow through the aqueduct of Sylvius, and resulted in congenital hydrocephalus. These data implicate the RFX4_v3 variant transcript as being crucial for early brain development, as well as for the genesis of the subcommissural organ. These findings may be relevant to human congenital hydrocephalus, a birth defect that affects approximately 0.6 per 1000 newborns.