Abnormal posttranslational modifications of tau protein lead it to aggregate into paired helical filaments in Alzheimer's disease (AD). The mechanisms involved in the early pathological processing of tau and the induction of a polymeric state seem to progress through a sequential pattern of changes mainly involving abnormal phosphorylation, conformational changes and truncation. While proteolytic cleavage of tau protein during the progression of AD has not been comprehensively analyzed, tau is a substrate for several intracellular proteases. Furthermore, abnormal regulation of proteolytic events, including those associated with apoptosis, may generate truncated tau subproducts which in turn may be toxic to neurons per se and capable of polymerization at a faster rate. Accumulation of tau fibrils has long been controversial, with much debate concerning the true toxicity of polymerized tau. The development of different transgenic mice overexpressing tau protein, the generation of cell models expressing tau, and the in vitro polymerization paradigms have significantly enhanced our understanding of the biophysics and pathological properties of tau polymers in AD, as well as in other tau pathologies. This review will discuss the pathological role of truncated tau protein in the context of toxicity and neurofibrillary tangle formation and maturation and its significance in clinical dementia.