TDP-43 inclusions enriched in C-terminal terminal fragments of ~25 kDa ("TDP-25") are associated with neurodegeneration in amyotrophic lateral sclerosis (ALS) and frontotemporal dementia (FTD). Here, we analyzed gain-of-function mechanisms of TDP-25 combining cryo-electron tomography, proteomics and functional assays. We show that TDP-25 inclusions are amorphous with gel-like properties. Inclusions sequester proteasomes adopting exclusively substrate-processing conformations. This leads to proteostasis impairment, further enhanced by pathogenic mutations. These findings bolster the importance of proteasome dysfunction in ALS/FTD.