Studied 101 children, ages 6 to 15 years (50 with early-onset hydrocephalus, 51 normally developing), on four oral discourse tasks: establishing alternate meanings for ambiguous sentences; understanding figurative expressions; making bridging inferences; and producing speech acts. Children with hydrocephalus performed more poorly than controls on all four discourse tasks; and a higher-IQ hydrocephalus subgroup performed more poorly than controls on all but the figurative expressions task. The fluent, grammatically framed, but content-impoverished language described in early-onset hydrocephalus appears to reflect not so much problems in deriving word- and sentence-based meaning as deficits in the pragmatic use and understanding of language in discourse.