Pulmonary hypoplasia with anasarca, or hydrops fetalis, is characterized by stillbirth, diffuse oedema, and generalized lymph node hypoplasia. The enlarged fetus frequently causes dystocia. The disease has been reported in cattle and sheep as an inherited condition with a recessive mode of inheritance. This is the first report of the disease in Persian/Persian-cross sheep in Australia. Affected fetuses were reported from three flocks, and a total of eleven affected, eleven obligate carrier, and 188 related Persian/Persian-cross animals were available for analysis, as well as unrelated control animals. SNP genotyping revealed a region of homozygosity in affected animals on ovine chromosome six, which contained the functional candidate gene . Whole genome sequencing of two affected fetuses and one obligate carrier ewe revealed a single nucleotide deletion, ENSOARG00000013204:g.87124344delC, located 3 bp downstream from a donor splice site region in the gene. Sanger sequencing of cDNA containing this variant further revealed that it is likely to introduce an early splice site in exon 14, resulting in a loss of 6 amino acids at the junction of exon 14 and intron 14/15. A genotyping assay was developed, and the ENSOARG00000013204:g.87124344delC segregated with disease in 209 animals, allowing for effective identification of carrier animals.