Acquired non-traumatic transethmoidal encephaloceles are very infrequent lesions that are generally caused by a tumor or hydrocephalus. As far as we know, there is no reported case of encephalocele after CSF diversion in the literature. We present a 25-year-old woman with hydrocephalus due to aquiductal stenosis who was treated with endoscopic third ventriculostomy. Nine months later, she had developed rhinorrhea and on imaging she had a transethmoidal encephalocele. She underwent endonasal endoscopic repair of the defect and removal of herniated parenchyma. CSF diversion to parasellar cisterns is not a known iatrogenic cause of basal encephalocele and is not noted elsewhere as a complication of third ventriculostomy. However, as third ventriculostomy is performed usually for intracranial hypertension treatment and intracranial hypertension itself is a known but rare cause of lacunar skull defect and encephalocele, this co-incidence may occur.