Prenatal alcohol exposure (PAE) has been linked to poorer performance on the Morris water maze (MWM), a test of spatial navigation in rodents that is dependent on hippocampal functioning. We recently confirmed these findings in children with PAE on a human analog of the MWM, the virtual water maze (VWM). Previous studies have shown that the hippocampus is particularly sensitive to PAE. Our aim was to determine whether hippocampal volume mediates the relation between PAE and virtual navigation. VWM and MRI hippocampal data were collected from 50 right-handed 10-year-old children in a heavily exposed Cape Town, South African sample. PAE data had been collected from their mothers during pregnancy, and the children were examined by expert fetal alcohol spectrum disorder (FASD) dysmorphologists. In the VWM, the participant attempts to learn the location of a hidden platform in a virtual pool of water across a series of learning trials using only distal room cues. Hippocampal volumes were derived using FreeSurfer from MRI scans administered within 1week of completing the VWM task. Both the fetal alcohol syndrome (FAS)/partial FAS and nonsyndromal heavy-exposed (HE) groups had smaller hippocampal volumes than controls. PAE was associated with reduced right hippocampal volumes even after control for total intracranial volume (ICV). Hippocampal volume was also positively associated with VWM performance. The relation between PAE and VWM performance was partially mediated by right hippocampal volume but not by total ICV. These data confirm previous reports linking PAE to poorer spatial navigation on the VWM and are the first to provide direct evidence that volume reductions in this region partially mediate the relation of FASD diagnosis to place learning, suggesting that PAE specifically impairs the ability to encode the spatial information necessary for successful location of the hidden platform on a navigation task.