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, i.e. GABAergic neurons. Surprisingly, these mice developed a marked enlargement of the lateral ventricles at approximately seven 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