The neurodevelopmental sequelae in 33 low birth weight neonates with moderate or severe hemorrhage and ventriculomegaly (VM group) and in 39 neonates with mild hemorrhage only (non-VM group) were evaluated prospectively. Both groups were comparable in birth weight, gestational age, and socioeconomic status. Ventriculoperitoneal shunts were inserted in 23 of the 33 VM group infants at a mean age of 26 days. Eighty-two shunt revisions were performed, for obstruction (71 revisions) or infection (11 revisions), in 18 of the 23 children. At a mean age of 50 months, 19 of 33 children in the VM group had sequelae; 14 children had moderate or severe neurologic deficits, and 5 children had mild sequelae. In the non-VM group, only 3 of 39 children had deficits, all of which were mild (p less than 0.05). In the VM group, 19 of 33 children had mental developmental delay in comparison with 8 of 39 in the non-VM group (p less than 0.05), and 17 of 33 children in the VM group had motor developmental delay in comparison with 5 of 39 in the non-VM group (p less than 0.01). Within the VM group, the number of children with neurodevelopmental sequelae did not differ significantly among the 23 children with shunts, in comparison with the 10 who did not require shunting. Among the children with shunts, a higher incidence of sequelae occurred when lack of ventricular decompression was noted immediately after shunt insertion (p less than 0.005) and when shunt infections occurred (p less than 0.01). The most important predictor of mental and motor outcome in the group with shunts was lack of ventricular decompression immediately after shunt insertion. We speculate that, in some infants, loss of brain tissue, cerebral atrophy, or both may occur before insertion of the ventriculoperitoneal shunt, even when the shunt is inserted early.