Neurofibrillary degeneration is a key histopathological brain lesion of Alzheimer disease (AD) and related neurodegenerative disorders such as frontotemporal dementia and Parkinsonism linked to chromosome 17 (FTDP-17), commonly referred to as tauopathies. Microtubule associated protein (MAP) tau, which is a major MAP of a normal mature neuron is abnormally hyperphosphorylated in tauopathies and is the major protein subunit of paired helical filaments (PHF)/straight filaments (SF) which accumulate in the soma (as neurofibrillary tangles) and dystrophic neurites (as neuropil threads and as dystrophic neurites surrounding the beta-amyloid core in neuritic plaques in AD) of the affected neurons. Unlike normal tau which stimulates assembly and stabilizes microtubules, the abnormally hyperphosphorylated tau inhibits assembly and disrupts microtubules. The abnormally hyperphosphorylated tau competes with tubulin/microtubules in associating with normal tau, MAP1 and MAP2. This sequestration of normal MAPs by the abnormal tau results in the breakdown of the microtubules. The association of the abnormal tau with normal tau and not with MAP1 or MAP2 results in the formation of tangles of tau filaments. All these toxic properties of the abnormally hyperphosphorylated tau are eliminated by its enzymatic dephosphorylation. Activities of phosphoseryl/phosphothreonyl protein phosphatases (PP)-2A and PP-1 which can dephosphorylate the abnormal tau to a normal-like state are compromised in AD brain. Dephosphorylation by PP-2A and PP-2B and to a lesser extent by PP-1 restores the normal microtubule assembly promoting activity in AD P-tau in vitro. Neurofibrillary tangles of PHF isolated from AD brain are also dissociated on in vitro dephosphorylation with PP-2A, and the tau released by this treatment can stimulate microtubule assembly. Thus, it appears that the abnormal hyperphosphorylation of tau leads to neurodegeneration through breakdown of the microtubule network and that the abnormal tau on association with normal tau forms neurofibrillary tangles of tau filaments i.e. PHF/SF. Increase in tau phosphatase activity is a promising approach to inhibit neurofibrillary degeneration and thereby the diseases characterized by this lesion.