Abnormally phosphorylated tau proteins (A68) are the building blocks of Alzheimer's disease (AD) paired helical filaments. The biological consequences of the conversion of normal adult tau to A68 remain unknown. Here we demonstrate that native A68 does not bind to microtubules (MTs), yet dephosphorylated A68 regains the ability to bind to MTs. Ser396 is phosphorylated in A68, but not in normal adult tau, whereas fetal tau is phosphorylated transiently at this site. Phosphorylation of tau at Ser396 by protein kinases in CHO cells and rat brain produces an electrophoretic mobility similar to that of A68. Using CHO cells transfected with an Ala396 mutant, we show that the phosphorylation of tau at Ser396 reduces its affinity for MTs and its ability to stabilize MTs against nocodazole-induced depolymerization. Our results demonstrate that the abnormal phosphorylation of tau in AD involves Ser396, and we suggest that this may be mediated by the inappropriate activation of fetal kinases or the reduced activity of tau protein phosphatases. Thus, phosphorylation of Ser396 may destabilize MTs in AD, resulting in the degeneration of affected cells.