The lipid phosphatase FIG4 is a subunit of the protein complex that regulates biosynthesis of the signaling lipid PI(3,5)P₂. Mutations of FIG4 result in juvenile lethality and spongiform neurodegeneration in the mouse, and are responsible for the human disorders Charcot–Marie–Tooth disease, Yunis–Varon syndrome and polymicrogyria with seizures. We previously demonstrated that conditional expression of a wild-type FIG4 transgene in neurons is sufficient to rescue most of the abnormalities of Fig4 null mice, including juvenile lethality and extensive neurodegeneration. To evaluate the contribution of the phosphatase activity to the in vivo function of Fig4, we introduced the mutation p.Cys486Ser into the Sac phosphatase active-site motif CX₅RT. Transfection of the Fig4^Cys486Ser cDNA into cultured Fig4^−/− fibroblasts was effective in preventing vacuolization. The neuronal expression of an NSE-Fig4^Cys486Ser transgene in vivo prevented the neonatal neurodegeneration and juvenile lethality seen in Fig4 null mice. These observations demonstrate that the catalytically inactive FIG4 protein provides significant function, possibly by stabilization of the PI(3,5)P₂ biosynthetic complex and/or localization of the complex to endolysosomal vesicles. Despite this partial rescue, later in life the NSE-Fig4^Cys486Ser transgenic mice display significant abnormalities that include hydrocephalus, defective myelination and reduced lifespan. The late onset phenotype of the NSE-Fig4^Cys486Ser transgenic mice demonstrates that the phosphatase activity of FIG4 has an essential role in vivo.