Mf1 encodes a forkhead/winged helix transcription factor expressed in many embryonic tissues, including prechondrogenic mesenchyme, periocular mesenchyme, meninges, endothelial cells, and kidney. Homozygous null Mf1lacZ mice die at birth with hydrocephalus, eye defects, and multiple skeletal abnormalities identical to those of the classical mutant, congenital hydrocephalus. We show that congenital hydrocephalus involves a point mutation in Mf1, generating a truncated protein lacking the DNA-binding domain. Mesenchyme cells from Mf1lacZ embryos differentiate poorly into cartilage in micromass culture and do not respond to added BMP2 and TGFβ1. The differentiation of arachnoid cells in the mutant meninges is also abnormal. The human Mf1 homolog FREAC3 is a candidate gene for ocular dysgenesis and glaucoma mapping to chromosome 6p25-pter, and deletions of this region are associated with multiple developmental disorders, including hydrocephaly and eye defects.