Yunis-Varón syndrome (YVS) is an autosomal-recessive disorder with cleidocranial dysplasia, digital anomalies, and severe neurological involvement. Enlarged vacuoles are found in neurons, muscle, and cartilage. By whole-exome sequencing, we identified frameshift and missense mutations of FIG4 in affected individuals from three unrelated families. FIG4 encodes a phosphoinositide phosphatase required for regulation of PI(3,5)P₂ levels, and thus endosomal trafficking and autophagy. In a functional assay, both missense substitutions failed to correct the vacuolar phenotype of Fig4-null mouse fibroblasts. Homozygous Fig4-null mice exhibit features of YVS, including neurodegeneration and enlarged vacuoles in neurons. We demonstrate that Fig4-null mice also have small skeletons with reduced trabecular bone volume and cortical thickness and that cultured osteoblasts accumulate large vacuoles. Our findings demonstrate that homozygosity or compound heterozygosity for null mutations of FIG4 is responsible for YVS, the most severe known human phenotype caused by defective phosphoinositide metabolism. In contrast, in Charcot-Marie-Tooth disease type 4J (also caused by FIG4 mutations), one of the FIG4 alleles is hypomorphic and disease is limited to the peripheral nervous system. This genotype-phenotype correlation demonstrates that absence of FIG4 activity leads to central nervous system dysfunction and extensive skeletal anomalies. Our results describe a role for PI(3,5)P₂ signaling in skeletal development and maintenance.