We previously identified a significant bipolar spectrum disorder linkage peak on 15q25-26 using 35 extended families with a broad clinical phenotype, including bipolar disorder (types I and II), recurrent unipolar depression and schizoaffective disorder. However, the specific gene(s) contributing to this signal had not been identified. By a fine mapping association study in an Australian case-control cohort (n = 385), we find that the sialyltransferase 8B (ST8SIA2) gene, coding for an enzyme that glycosylates proteins involved in neuronal plasticity which has previously shown association to both schizophrenia and autism, is associated with increased risk to bipolar spectrum disorder. Nominal single point association was observed with SNPs in ST8SIA2 (rs4586379, P = 0.0043; rs2168351, P = 0.0045), and a specific risk haplotype was identified (frequency: bipolar vs controls = 0.41 vs 0.31; χ2 = 6.46, P = 0.011, OR = 1.47). Over-representation of the specific risk haplotype was also observed in an Australian schizophrenia case-control cohort (n = 256) (χ2 = 8.41, P = 0.004, OR = 1.82). Using GWAS data from the NIMH bipolar disorder (n = 2055) and NIMH schizophrenia (n = 2550) cohorts, the equivalent haplotype was significantly over-represented in bipolar disorder (χ2 = 5.91, P = 0.015, OR = 1.29), with the same direction of effect in schizophrenia, albeit non-significant (χ2 = 2.3, P = 0.129, OR = 1.09). We demonstrate marked down-regulation of ST8SIA2 gene expression across human brain development and show a significant haplotype×diagnosis effect on ST8SIA2 mRNA levels in adult cortex (ANOVA: F(1,87) = 6.031, P = 0.016). These findings suggest that variation the ST8SIA2 gene is associated with increased risk to mental illness, acting to restrict neuronal plasticity and disrupt early neuronal network formation, rendering the developing and adult brain more vulnerable to secondary genetic or environmental insults.