Mutations in the adenosine-to-inosine RNA-editing enzyme ADAR1 p150, including point mutations in the Z-RNA recognition domain Zα, are associated with Aicardi-Goutières syndrome (AGS). Here, we examined the in vivo relevance of ADAR1 binding of Z-RNA. Mutation of W197 in Zα, which abolished Z-RNA binding, reduced RNA editing. Adar1 mice displayed severe growth retardation after birth, broad expression of interferon-stimulated genes (ISGs), and abnormal development of multiple organs. Notably, malformation of the brain was accompanied by white matter vacuolation and gliosis, reminiscent of AGS-associated encephalopathy. Concurrent deletion of the double-stranded RNA sensor MDA5 ameliorated these abnormalities. ADAR1 (W197A) expression increased in a feedback manner downstream of type I interferons, resulting in increased RNA editing at a subset of, but not all, ADAR1 target sites. This increased expression did not ameliorate inflammation in Adar1 mice. Thus, editing of select endogenous RNAs by ADAR1 is essential for preventing inappropriate MDA5-mediated inflammation, with relevance to the pathogenesis of AGS.