Encephalopathy of prematurity (EP) is a broad designation that encompasses various neurological pathologies common after pre-term birth, including choroid plexus, germinal matrix, and intraventricular hemorrhages, periventricular leukomalacia, neuronal and axonal pathology, and hydrocephalus. EP is common in preterm, low-birth weight infants and is associated with life-long cognitive, behavioral, and motor (cerebral palsy) abnormalities in survivors. Here, a novel clinically-relevant rat model of EP was developed and characterized that combines dual prenatal insults of transient intrauterine ischemia and low-level maternal systemic inflammation (IUI+LPS). Ischemia and inflammation, both potent activators of angiogenesis, led to weakened blood vessels and predisposed to hemorrhage in pups after vaginal delivery. Prominent hemorrhages, white matter damage, and accompanying behavioral deficits were observed in injured pups after vaginal delivery. In pups exposed to the same prenatal insults of IUI+LPS but delivered abdominally, hemorrhages were minimal, neurological function was similar to controls, and myelination and axonal development were significantly better persevered. Additionally, in susceptible animals, preventing or minimizing the impact of microhemorrhages through TLR4 antagonism or genetic deletion, or postnatal iron chelation resulted in improved outcomes. This work is the first to demonstrate the devastating role that neonatal brain microhemorrhages play in the overall pathology of neonatal brain function. This work has shown experimentally that the grave aftereffects of the combined prenatal insults can be significantly ameliorated if microhemorrhages are avoided, for example, by Caesarian-section (C-section) or possibly, by appropriate pharmacological prophylaxis of the high risk mother or affected infant.