||The embryonic endolymphatic sac mediates fluid resorption for which anion exchangers such as SLC26A4, and its transcriptional activator FOXI1, are required. Apart from FOXI1, little is known about transcriptional regulators of this fluid balance. Altered fluid homeostasis in the inner ear is the leading cause of congenital hearing loss. Some patients with campomelic dysplasia (CD) caused by heterozygous mutations in SOX9, in addition to skeletal malformation, are deaf, with an unknown etiology. In a mouse model of CD caused by the SOX9Y440X mutation, which results in a truncated protein lacking the transactivation domain, we show severe endolymphatic dysfunction leading to deafness and vestibular problems. Adult heterozygous Sox9Y440X mice that express the mutation in the developing inner ear display sensorineural deafness combined with endolymphatic hydrops and lack of endocochlear potential. The mutant inner ear is enlarged from E15 and fewer Slc26a4-expressing cells are present in the endolymphatic epithelium. By single cell RNA sequencing of mutant and wild-type endolymphatic sacs we find marked reduction in genes important for ion transport such as Slc24a4 and Ttyh1 and gap-junctions such as Gjb2 and up-regulation of Wnt signaling and Igfbp2 that promotes progenitor proliferation. The cochlea overexpresses Aqp3, which encodes a water channel. We find by biochemical and cell-based transactivation assays and genetic interaction tests that SOX9 and SOX10 normally work co-operatively to repress Aqp3 transcription: SOX9Y440X blocks this repression by dominant interference. Our study reveals the key roles of SOXE transcription factors in the development of endolymphatic sac function, and highlight a molecular mechanism whereby the CD mutation exerts both a dominant negative and haploinsufficient mechanisms in different compartments of the inner ear to maintain fluid homeostasis. In the cochlea, SOX9 and SOX10 together repress aquaporin expression whereas in the endolymphatic sac, SOX9 controls SOX10 expression and genes for ion transport and gap-junctions. We postulate that in addition to loss of control of cell proliferation results in the exhaustion of progenitors which in turn leads to a deficit in mitochondria-rich cells. These results highlight a multifaceted mechanism for maintaining the proper fluid balance for hearing.