Advances in neonatal critical care have reduced the incidence of intraventricular hemorrhage (IVH) in the newborn. Paradoxically, however, the prevalence of the complications of IVH including posthemorrhagic hydrocephalus (PHHC) has increased. By virtue of its association with long-term neurodevelopmental disability, posthemorrhagic hydrocephalus is an ominous diagnosis in the premature infant. Animal models have demonstrated that ventricular distention may cause direct cerebral parenchymal injury. Evidence for secondary parenchymal injury in the premature infant with PHHC is by necessity indirect. The precise impact of secondary parenchymal injury on the overall neurological outcome of premature infants with PHHC remains unclear in large part because of the vulnerability of the immature brain to other forms of injury (e.g., periventricular leukomalacia) that may be difficult to distinguish from injury due to distention. Furthermore, parenchymal injury due to PVL may cause ventricular enlargement that does not benefit from CSF diversion. Because these primary and secondary mechanisms of injury may operate concurrently, the precise or dominant cause of ventricular enlargement is often difficult to establish with certainty in the neonatal period. These diagnostic dilemmas have in turn impeded the development and evaluation of therapies specifically aimed at reversing ventricular distention and preventing secondary parenchymal injury. This article focuses on the current dilemmas in diagnosis and management of this potentially reversible form of injury as well as on potential future strategies for its prevention.