Neurofibrillary tangles (NFTs), composed of truncated and hyperphosphorylated tau, are a common feature of numerous aging-related neurodegenerative diseases, including Alzheimer's disease (AD). However, the molecular mechanisms mediating tau truncation and aggregation during aging remain elusive. Here we show that asparagine endopeptidase (AEP), a lysosomal cysteine proteinase, is activated during aging and proteolytically degrades tau, abolishes its microtubule assembly function, induces tau aggregation and triggers neurodegeneration. AEP is upregulated and active during aging and is activated in human AD brain and tau P301S-transgenic mice with synaptic pathology and behavioral impairments, leading to tau truncation in NFTs. Tau P301S-transgenic mice with deletion of the gene encoding AEP show substantially reduced tau hyperphosphorylation, less synapse loss and rescue of impaired hippocampal synaptic function and cognitive deficits. Mice infected with adeno-associated virus encoding an uncleavable tau mutant showed attenuated pathological and behavioral defects compared to mice injected with adeno-associated virus encoding tau P301S. Together, these observations indicate that AEP acts as a crucial mediator of tau-related clinical and neuropathological changes. Inhibition of AEP may be therapeutically useful for treating tau-mediated neurodegenerative diseases.