Disproportionate volume reductions in the basal ganglia, corpus callosum (CC) and hippocampus have been reported in children with prenatal alcohol exposure (PAE). However, few studies have investigated these reductions in high prevalence communities, such as the Western Cape Province of South Africa, and only one study made use of manual tracing, the gold standard of volumetric analysis. The present study examined the effects of PAE on subcortical neuroanatomy using manual tracing and the relation of volumetric reductions in these regions to IQ and performance on the California Verbal Learning Test-Children's Version (CVLT-C), a list learning task sensitive to PAE. High-resolution T1-weighted images were acquired, using a sequence optimized for morphometric neuroanatomical analysis, on a Siemens 3T Allegra MRI scanner from 71 right-handed, 9- to 11-year-old children [9 fetal alcohol syndrome (FAS), 19 partial FAS (PFAS), 24 non-syndromal heavily exposed (HE) and 19 non-exposed controls]. Frequency of maternal drinking was ascertained prospectively during pregnancy using timeline follow-back interviews. PAE was examined in relation to volumes of the CC and left and right caudate nuclei, nucleus accumbens and hippocampi. All structures were manually traced using Multitracer. Higher levels of PAE were associated with reductions in CC volume after adjustment for TIV. Although the effect of PAE on CC was confounded with smoking and lead exposure, additional analyses showed that it was not accounted for by these exposures. Amongst dysmorphic children, smaller CC was associated with poorer IQ and CVLT-C scores and statistically mediated the effect of PAE on IQ. In addition, higher levels of PAE were associated with bilateral volume reductions in caudate nuclei and hippocampi, effects that remained significant after control for TIV, child sex and age, socioeconomic status, maternal smoking during pregnancy, and childhood lead exposure. These data confirm previous findings showing that PAE is associated with decreases in subcortical volumes and is the first study to show that decreases in callosal volume may play a role in fetal alcohol-related impairment in cognitive function seen in childhood.