Periventricular leukomalacia (PVL) is the most frequent cause of spastic diplegia. The movement disorder is attributed to damage to the corticospinal tract, but there is increasing evidence of additional cortical dysfunction associated with PVL. Aim of the present study was to evaluate the integrity of the corticospinal tract and cortical inhibitory function using transcranial magnetic stimulation. Fifteen children with bilateral PVL and spastic diplegia and twenty-two healthy children underwent single-pulse stimulations to the right tibial anterior muscle. We compared central motor conduction time and amplitudes of motor evoked potentials as markers for corticospinal integrity and the postexcitatory silent period (SP), representing cortical inhibitory interneurons. The patients’ parameters of corticospinal tract function did not differ significantly from those in the control children. In contrast, the SP was significantly shortened in children with PVL (mean 25.6 ± 6.9 ms; controls: mean 47.6 ± 23.2 ms, P = 0.018). This suggests cortical involvement with reduced cortical inhibitory function in PVL. This could be due to impaired functioning of the cortical interneurons themselves, or to decreased input from activating fibres, e.g. thalamocortical or cortico-cortical connections.