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The brain and spinal cord are bathed in and cushioned by a crystal clear fluid, spinal fluid, which is produced in large quantities by a structure called the choroid plexus of the brain. In the normal course of events, the fluid circulates around and is absorbed into the venous side of the bloodstream through the arachnoid villi that lie over the surface of the brain. Hydrocephalus - "water on the brain" - occurs when there is either a blockage for any reason to the absorption of fluid at the level of the subarachnoid villi or an obstruction of the normal circulatory pattern of the fluid from within the brain fluid spaces (ventricles) where it is produced to where it should be reabsorbed.
Hydrocephalus can have many causes. Among other things, it can be caused by congenital malformation of the brain and spinal cord (spina bifida or other abnormality), by malformation of the pathways of circulation, or by damage to the reabsorption system such as when brain hemorrhage occurs in premature babies.
Treatment of hydrocephalus is by surgical placement of a plastic shunt tube from the ventricle (internal fluid space of the brain) leading under the skin of the scalp and neck, down through the chest and into the abdomen (V-P shunt, ventriculoperitoneal shunt). There, the fluid is absorbed into the bloodstream from the abdominal cavity. Shunts are fickle things, and are sometimes prone to blockage. Shunt blockage can create something of a medical emergency for replacement.