Although the underlying neurobiology of major mental illness (MMI) remains unknown, emerging evidence implicates a role for oligodendrocyte–myelin abnormalities. Here, we took advantage of a large family carrying a balanced t(1;11) translocation, which substantially increases risk of MMI, to undertake both diffusion tensor imaging and cellular studies to evaluate the consequences of the t(1;11) translocation on white matter structural integrity and oligodendrocyte–myelin biology. This translocation disrupts among others the DISC1 gene which plays a crucial role in brain development. We show that translocation-carrying patients display significant disruption of white matter integrity compared with familial controls. At a cellular level, we observe dysregulation of key pathways controlling oligodendrocyte development and morphogenesis in induced pluripotent stem cell (iPSC) derived case oligodendrocytes. This is associated with reduced proliferation and a stunted morphology in vitro. Further, myelin internodes in a humanized mouse model that recapitulates the human translocation as well as after transplantation of t(1;11) oligodendrocyte progenitors were significantly reduced when compared with controls. Thus we provide evidence that the t(1;11) translocation has biological effects at both the systems and cellular level that together suggest oligodendrocyte–myelin dysfunction.