Prion diseases or transmissible spongiform encephalopathies are neurodegenerative disorders that are genetic, sporadic, or infectious. The pathogenetic event common to all prion disorders is a change in conformation of the cellular prion protein (PrPC) to the scrapie isoform (PrPSc), which, unlike PrPC, aggregates easily and is partially resistant to protease digestion. Although PrPSc is believed to be essential for the pathogenesis and transmission of prion disorders, the mechanism by which PrPSc deposits cause neurodegeneration is unclear. It has been proposed that in some cases of prion disorders, a transmembrane form of PrP, termed CtmPrP may be the mediator of neurodegenerative changes rather than PrPSc per se. In order to understand the underlying cellular processes by which PrPSc mediates neurodegeneration, we have investigated the mechanism of neurotoxicity by a beta-sheet rich peptide of PrP in a cell model. We show that exposure of human neuronal cell lines NT-2 and M17 to the prion peptide 106-126 (PrP106-126) catalyzes the aggregation of endogenous cellular prion protein (PrPC) to an amyloidogenic form that shares several characteristics with PrPSc. Intracellular accumulation of these PrPSc-like forms upregulates the synthesis of CtmPrP, which is proteolytically cleaved in the endoplasmic reticulum and the truncated C-terminal fragment is transported to the cell surface. In addition, we have isolated mutant NT-2 and neuroblastoma cells that are resistant to toxicity by PrP106-126 to facilitate further characterization of the biochemical pathways of PrP106-126 neurotoxicity. The PrP106-126-resistant phenotype of these cells could result from aberrant binding or internalization of the peptide, or due to an abnormality in the downstream pathway(s) of neuronal toxicity. Thus, our data suggest that PrPSc aggregation occurs by a process of 'nucleation' on a pre-existing 'seed' of PrP. Furthermore, the PrP106-126-resistant cells reported here will provide a unique opportunity for identifying the cellular and biochemical pathways that mediate neurotoxicity by PrPSc.