Diagnosis may be delayed for several months because the infant's early behavior appears to be relatively normal. Transillumination, an examination in which light is passed through body tissues, can be used to diagnose hydranencephaly. An accurate, confirmed diagnosis is generally impossible until after birth, though prenatal diagnosis using fetal ultrasonography (ultrasound) can identify characteristic physical abnormalities that exist. Through thorough clinical evaluation, via physical findings, detailed patient history, and advanced imaging techniques, such as angiogram, computerized tomography (CT scan), magnetic resonance imaging (MRI), or more rarely transillumination after birth are the most accurate diagnostic techniques. However, diagnostic literature fails to provide a clear distinction between severe obstructive hydrocephalus and hydranencephaly, leaving some children with an unsettled diagnosis.

Preliminary diagnosis may be made in utero via standard ultrasound, and can be confirmed with a standard anatomy ultrasound. This sometimes proves to provide a misdiagnosis of differential diagnoses including bilaterally symmetric schizencephaly (a less destructive developmental process on the brain), severe hydrocephalus (cerebrospinal fluid excess within the skull), and alobar holoprosencephaly (a neurological developmental anomaly). Once destruction of the brain is complete, the cerebellum, midbrain, thalami, basal ganglia, choroid plexus, and portions of the occipital lobes typically remain preserved to varying degrees. Though the cerebral cortex is absent, in most cases the fetal head remains enlarged due to the continued production by the choroid plexus of cerebrospinal fluid that is inadequately reabsorbed causing increased intracranial pressure.

There is no standard treatment for hydranencephaly. Treatment is symptomatic and supportive. Hydrocephalus may be treated with surgical treatment of a shunt, which often grants a much better prognosis and greater quality of life.

The prognosis for children with hydranencephaly is generally quite poor. Death often occurs in the first year of life, but other children may live several years.

Medical text identifies that hydranencephalic children simply have only their brain stem function remaining, thus leaving formal treatment options as symptomatic and supportive. Severe hydrocephalus causing macrocephaly, a larger than average head circumference, can easily be managed by placement of a shunt and often displays a misdiagnosis of another lesser variation of cephalic condition due to the blanketing nature of hydrocephalus. Plagiocephaly, the asymmetrical distortion of the skull, is another typical associated condition that is easily managed through positioning and strengthening exercises to prevent torticollis, a constant spasm or extreme tightening of the neck muscles.