Aggregation of the multifunctional RNA-binding protein TDP-43 defines large subgroups of amyotrophic lateral sclerosis and frontotemporal dementia and correlates with neurodegeneration in both diseases. In disease, characteristic C-terminal fragments of ~25 kDa ("TDP-25") accumulate in cytoplasmic inclusions. Here, we analyzed gain-of-function mechanisms of TDP-25 combining cryo-electron tomography, proteomics and functional assays. In neurons, cytoplasmic TDP-25 inclusions are amorphous and photobleaching experiments revealed gel-like biophysical properties far less dynamic than nuclear TDP-43. Compared to full length TDP-43, the TDP-25 interactome was depleted of lowcomplexity domain proteins. TDP-25 inclusions are enriched in 26S proteasomes adopting exclusively substrate-processing conformations, suggesting that inclusions sequester proteasomes, which are largely stalled and no longer undergo the cyclic conformational changes required for proteolytic activity. Reporter assays confirmed that TDP-25 impaired proteostasis, which is further enhanced by ALS-causing mutations. These findings bolster the importance of proteasome dysfunction in ALS/FTD. Key words ALS / neurodegeneration / phase separation / proteasome / TDP-43 Introduction