Changes in prion protein (PrP) folding are associated with fatal neurodegenerative disorders, but the neurotoxic species is unknown. Like other proteins that traffic through the endoplasmic reticulum, misfolded PrP is retrograde transported to the cytosol for degradation by proteasomes. Accumulation of even small amounts of cytosolic PrP was strongly neurotoxic in cultured cells and transgenic mice. Mice developed normally but acquired severe ataxia, with cerebellar degeneration and gliosis. This establishes a mechanism for converting wild-type PrP to a highly neurotoxic species that is distinct from the self-propagating PrP^Sc isoform and suggests a potential common framework for seemingly diverse PrP neurodegenerative disorders.