The neural tube defects (NTDs) spina bifida and anencephaly are widely prevalent severe birth defects. The mouse mutant curly tail (ct/ct) has served as a model of NTDs for 50 years, even though the responsible genetic defect remained unrecognized. Here we show by gene targeting, mapping and genetic complementation studies that a mouse homolog of the Drosophila grainyhead (grh) gene, grainyhead-like-3 (Grhl3), is a compelling candidate for the gene underlying the curly tail phenotype. The NTDs in Grhl3-null mice are more severe than those in the curly tail strain, as the Grhl3 alleles in ct/ct mice are hypomorphic. Spina bifida in ct/ct mice is folate resistant, but its incidence can be markedly reduced by maternal inositol supplementation periconceptually. The NTDs in Grhl3-/- embryos are also folate resistant, but unlike those in ct/ct mice, they are resistant to inositol. These findings suggest that residual Grhl3 expression in ct/ct mice may be required for inositol rescue of folate-resistant NTDs.