During the first postnatal week of mouse development, radial glial cells lining the ventricles of the brain differentiate into ependymal cells, undergoing a morphological change from pseudostratified cuboidal cells to a flattened monolayer. Concomitant with this change, multiple motile cilia are generated and aligned on each nascent ependymal cell. Proper ependymal cell development is crucial to forming the brain tissue:CSF barrier, and to the establishment of ciliary CSF flow, but the mechanisms that regulate this differentiation event are poorly understood. The JhylacZ mouse line carries an insertional mutation in the Jhy gene (formerly 4931429I11Rik), and homozygous JhylacZ/lacZ mice develop a rapidly progressive juvenile hydrocephalus, with defects in ependymal cilia morphology and ultrastructure. Here we show that beyond just defective motile cilia, JhylacZ/lacZ mice display abnormal ependymal cell differentiation. Ventricular ependyma in JhylacZ/lacZ mice retain an unorganized and multi-layered morphology, representative of undifferentiated ependymal (radial glial) cells, and they show altered expression of differentiation markers. Most JhylacZ/lacZ ependymal cells do eventually acquire some differentiated ependymal characteristics, suggesting a delay, rather than a block, in the differentiation process, but ciliogenesis remains perturbed. JhylacZ/lacZ ependymal cells also manifest disruptions in adherens junction formation, with altered N-cadherin localization, and have defects in the polarized organization of the apical motile cilia that do form. Functional studies showed that cilia of JhylacZ/lacZ mice have severely reduced motility, a potential cause for the development of hydrocephalus. This work shows that JHY does not only control ciliogenesis, but is a crucial component of the ependymal differentiation process, with ciliary defects likely a consequence of altered ependymal differentiation.