Hydrocephalus after intraventricular hemorrhage (IVH) has emerged as a major complication of preterm birth and is especially problematic to treat. The hydrocephalus is usually ascribed to fibrosing arachnoiditis, meningeal fibrosis and subependymal gliosis, which impair flow and resorption of cerebrospinal fluid (CSF). Recent experimental studies have suggested that acute parenchymal compression and ischemic damage, and increased parenchymal and perivascular deposition of extracellular matrix proteins—probably due at least partly to upregulation of transforming growth factor-β (TGF-β)—are further important contributors to the development of the hydrocephalus. IVH is associated with damage to periventricular white matter and the damage is exacerbated by the development of hydrocephalus; combinations of pressure, distortion, ischaemia, inflammation, and free radical-mediated injury are probably responsible. The damage to white matter accounts for the high frequency of cerebral palsy in this group of infants. The identification of mechanisms and mediators of hydrocephalus and white matter damage is leading to the development of new treatments to prevent permanent hydrocephalus and its neurological complications, and to avoid shunt dependence.