Body size reduction in mammals is usually associated with only moderate brain size reduction, because the brain and sensory organs complete their growth before the rest of the body during ontogeny. On this basis, `phyletic dwarfs' are predicted to have a greater relative brain size than `phyletic giants'. However, this trend has been questioned in the special case of dwarfism of mammals on islands. Here we show that the endocranial capacities of extinct dwarf species of hippopotamus from Madagascar are up to 30% smaller than those of a mainland African ancestor scaled to equivalent body mass. These results show that brain size reduction is much greater than predicted from an intraspecific `late ontogenetic' model of dwarfism in which brain size scales to body size with an exponent of 0.35. The nature of the proportional change or grade shift observed here indicates that selective pressures on brain size are potentially independent of those on body size. This study demonstrates empirically that it is mechanistically possible for dwarf mammals on islands to evolve significantly smaller brains than would be predicted from a model of dwarfing based on the intraspecific scaling of the mainland ancestor. Our findings challenge current understanding of brain-body allometric relationships in mammals and suggest that the process of dwarfism could in principle explain small brain size, a factor relevant to the interpretation of the small-brained hominin found on the Island of Flores, Indonesia.