The molecular basis for neuronal death in prion disease is not established, but putative pathogenic roles for both disease-related prion protein (PrP(Sc)) and accumulated cytosolic PrP(C) have been proposed. Here we report that only prion-infected neuronal cells become apoptotic after mild inhibition of the proteasome, and this is strictly dependent upon sustained propagation of PrP(Sc). Whereas cells overexpressing PrP(C) developed cytosolic PrP(C) aggregates, this did not cause cell death. In contrast, only in prion-infected cells, mild proteasome impairment resulted in the formation of large cytosolic perinuclear aggresomes that contained PrP(Sc), heat shock chaperone 70, ubiquitin, proteasome subunits, and vimentin. Similar structures were found in the brains of prion-infected mice. PrP(Sc) aggresome formation was directly associated with activation of caspase 3 and 8, resulting in apoptosis. These data suggest that neuronal propagation of prions invokes a neurotoxic mechanism involving intracellular formation of PrP(Sc) aggresomes. This, in turn, triggers caspase-dependent apoptosis and further implicates proteasome dysfunction in the pathogenesis of prion diseases.