Hydrocephalus (HC) is an imbalance in cerebrospinal fluid (CSF) secretion/absorption resulting in fluid accumulation within the brain with consequential pathophysiology. Our research has identified a unique cerebral folate system in which depletion of CSF 10-formyl-tetrahydrofolate-dehydrogenase (FDH) is associated with cortical progenitor cell-cycle arrest in hydrocephalic Texas (H-Tx) rats. We used tissue culture, immunohistochemistry, in-situ PCR and RT-PCR and found that the in-vitro proliferation of arachnoid cells is highly folate-dependent with exacerbated proliferation occurring in hydrocephalic CSF that has low FDH but high folate-receptor-alpha (FRα) and folate. Adding FDH to this CSF prevented aberrant proliferation indicating a regulatory function of FDH on CSF folate concentration. Arachnoid cells have no detectable mRNA for FRα or FDH, but FDH mRNA is found in the choroid plexus (CP) and CSF microvesicles. Co-localization of FDH, FRα and folate suggests important functions of FDH in cerebral folate transport, buffering and function. In conclusion, abnormal CSF levels of FDH, FRα and folate inhibit cortical cell proliferation but allow uncontrolled arachnoid cell division that should increase fluid absorption by increasing the arachnoid although this fails in the hydrocephalic brain. FDH appears to buffer available folate to control arachnoid proliferation and function.