Postmortem studies have revealed a downregulation of the transcription factor Pax5 in GABAergic neurons in bipolar disorder, a neurodevelopmental disorder, raising the question whether Pax5 in GABAergic neurons has a role in normal brain development. In a genetic approach to study functions of Pax5 in GABAergic neurons, Pax5 was specifically deleted in GABAergic neurons from Pax5 floxed mice using a novel Gad1-Cre transgenic mouse line expressing Cre recombinase in Gad1-positive, that is, GABAergic neurons. Surprisingly, these mice developed a marked enlargement of the lateral ventricles at approximately 7 weeks of age, which was lethal within 1–2 weeks of its appearance. This hydrocephalus phenotype was observed in mice homozygous or heterozygous for the Pax5 conditional knockout, with a gene dosage-dependent penetrance. By QTL (quantitative trait loci) mapping, a 3.5 Mb segment on mouse chromosome 4 flanked by markers D4Mit237 and D4Mit214 containing approximately 92 genes including Pax5 has previously been linked to differences in lateral ventricular size. Our findings are consistent with Pax5 being a relevant gene underlying this QTL phenotype and demonstrate that Pax5 in GABAergic neurons is essential for normal ventricular development. genesis 51:234–245. © 2013 Wiley Periodicals, Inc.