Ataxin-3 is a ubiquitously expressed deubiqutinating enzyme with important functions in the proteasomal protein degradation pathway and regulation of transcription. The C-terminus of the ataxin-3 protein contains a polyglutamine (PolyQ) region that, when mutationally expanded to over 52 glutamines, causes the neurodegenerative disease spinocerebellar ataxia 3 (SCA3). In spite of extensive research, the molecular mechanisms underlying the cellular toxicity resulting from mutant ataxin-3 remain elusive and no preventive treatment is currently available. It has become clear over the last decade that the hallmark intracellular ataxin-3 aggregates are likely not the main toxic entity in SCA3. Instead, the soluble PolyQ containing fragments arising from proteolytic cleavage of ataxin-3 by caspases and calpains are now regarded to be of greater influence in pathogenesis. In addition, recent evidence suggests potential involvement of a RNA toxicity component in SCA3 and other PolyQ expansion disorders, increasing the pathogenic complexity. Herein, we review the functioning of ataxin-3 and the involvement of known protein and RNA toxicity mechanisms of mutant ataxin-3 that have been discovered, as well as future opportunities for therapeutic intervention.