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Penguins have undergone dramatic changes associated with the evolution of underwater flight and subsequent loss of aerial flight, which are manifest and well documented in the musculoskeletal system and integument. Significant modification of neurosensory systems and endocranial spaces may also be expected along this locomotor transition. However, no investigations of the brain and sensory organs of extinct stem lineage Sphenisciformes have been carried out, and few data exist even for extant species of Spheniscidae. In order to explore neuroanatomical evolution in penguins, we generated virtual endocasts for the early Miocene stem penguin Paraptenodytes antarcticus, three extant penguin species (Pygoscelis antarctica, Aptenodytes patagonicus, Spheniscus magellanicus), and two outgroup species (the common loon Gavia immer and the Laysan albatross Phoebastria immutabilis). These endocasts yield new anatomical data and phylogenetically informative characters from the brain, carotid arteries, pneumatic recesses, and semicircular canal system. Despite having undergone over 60 million years of evolution since the loss of flight, penguins retain many attributes traditionally linked to flight. Features associated with visual acuity and proprioception, such as the sagittal eminence and flocculus, show a similar degree of development to those of volant birds in the three extant penguins and Paraptenodytes antarcticus. These features, although clearly not flight-related in penguins, are consistent with the neurological demands associated with rapid manoeuvring in complex aquatic environments. Semicircular canal orientation in penguins is similar to volant birds. Interestingly, canal radius is grossly enlarged in the fossil taxon Pa. antarcticus compared to living penguins and outgroups. In contrast to all other living birds, the contralateral anterior tympanic recesses of extant penguins do not communicate. An interaural pathway connecting these recesses is retained in Pa. antarcticus, suggesting that stem penguins may still have employed this connection, potentially to enhance directional localization of sound. Paedomorphosis, already identified as a potential factor in crown clade penguin skeletal morphology, may also be implicated in the failure of an interaural pathway to form during ontogeny in extant penguins.