The mechanism of cell death in prion disease is unknown but is associated with the production of a misfolded conformer of the prion protein. We report that disease-associated prion protein specifically inhibits the proteolytic beta subunits of the 26S proteasome. Using reporter substrates, fluorogenic peptides, and an activity probe for the beta subunits, this inhibitory effect was demonstrated in pure 26S proteasome and three different cell lines. By challenge with recombinant prion and other amyloidogenic proteins, we demonstrate that only the prion protein in a nonnative beta sheet conformation inhibits the 26S proteasome at stoichiometric concentrations. Preincubation with an antibody specific for aggregation intermediates abrogates this inhibition, consistent with an oligomeric species mediating this effect. We also present evidence for a direct relationship between prion neuropathology and impairment of the ubiquitin-proteasome system (UPS) in prion-infected UPS-reporter mice. Together, these data suggest a mechanism for intracellular neurotoxicity mediated by oligomers of misfolded prion protein.