Kruppel-like factor 4 (KLF4) is involved in self-renewal of embryonic stem cells and reprogramming of somatic cells to pluripotency. However, its role in lineage-committed stem cells remains largely unknown. Here, we show that KLF4 is expressed in neural stem cells (NSCs) and is down-regulated during neuronal differentiation. Unexpectedly, enhanced expression of KLF4 reduces self-renewal of cultured NSCs and inhibits proliferation of subventricular neural precursors in transgenic mice. Mice with increased KLF4 in NSCs and NSCs-derived ependymal cells developed hydrocephalus-like characteristics, including enlarged ventricles, thinned cortex, agenesis of the corpus callosum, and significantly reduced subcommissural organ. These characteristics were accompanied by elevation of GFAP expression and astrocyte hypertrophy. The ventricular cilia, vital for cerebrospinal fluid flow, are also disrupted in the mutant mice. These results indicate that down-regulation of KLF4 is critical for neural development and its dysregulation may lead to hydrocephalus.