Enhancers that are conserved deep in evolutionary time regulate characteristics held in common across taxonomic classes. Here, deletion of the highly conserved enhancer SBE2 ( brain enhancer 2) in mouse markedly reduced expression within the embryonic brain specifically in the rostral diencephalon; however, no abnormal anatomical phenotype was observed. Secondary enhancer activity was subsequently identified which likely mediates low levels of expression. In contrast, when crossing the SBE2 deletion with the null allele, brain and craniofacial development were disrupted; thus, linking SBE2 regulated expression to multiple defects and further enabling the study of the effects of differing levels of on embryogenesis. Development of the hypothalamus, derived from the rostral diencephalon, was disrupted along both the anterior-posterior (AP) and the dorsal-ventral (DV) axes. Expression of DV patterning genes and subsequent neuronal population induction were particularly sensitive to expression levels, demonstrating a novel morphogenic context for . The role of SBE2, which is highlighted by DV gene expression, is to step-up expression of above the minimal activity of the second enhancer, ensuring the necessary levels of in a regional-specific manner. We also show that low levels in the diencephalon disrupted neighbouring craniofacial development, including mediolateral patterning of the bones along the cranial floor and viscerocranium. Thus, SBE2 contributes to hypothalamic morphogenesis and ensures there is coordination with the formation of the adjacent midline cranial bones that subsequently protect the neural tissue.