Microsatellite expansions cause a number of dominantly-inherited neurological diseases. Expansions in coding-regions cause protein gain-of-function effects, while non-coding expansions produce toxic RNAs that alter RNA splicing activities of MBNL and CELF proteins. Bi-directional expression of the spinocerebellar ataxia type 8 (SCA8) CTG CAG expansion produces CUG expansion RNAs (CUG(exp)) from the ATXN8OS gene and a nearly pure polyglutamine expansion protein encoded by ATXN8 CAG(exp) transcripts expressed in the opposite direction. Here, we present three lines of evidence that RNA gain-of-function plays a significant role in SCA8: 1) CUG(exp) transcripts accumulate as ribonuclear inclusions that co-localize with MBNL1 in selected neurons in the brain; 2) loss of Mbnl1 enhances motor deficits in SCA8 mice; 3) SCA8 CUG(exp) transcripts trigger splicing changes and increased expression of the CUGBP1-MBNL1 regulated CNS target, GABA-A transporter 4 (GAT4/Gabt4). In vivo optical imaging studies in SCA8 mice confirm that Gabt4 upregulation is associated with the predicted loss of GABAergic inhibition within the granular cell layer. These data demonstrate that CUG(exp) transcripts dysregulate MBNL/CELF regulated pathways in the brain and provide mechanistic insight into the CNS effects of other CUG(exp) disorders. Moreover, our demonstration that relatively short CUG(exp) transcripts cause RNA gain-of-function effects and the growing number of antisense transcripts recently reported in mammalian genomes suggest unrecognized toxic RNAs contribute to the pathophysiology of polyglutamine CAG CTG disorders.