Aggregation and accumulation of the microtubule-associated protein tau are associated with cognitive decline and neuronal degeneration in Alzheimer's disease and other tauopathies. Thus, preventing the transition of tau from a soluble state to insoluble aggregates and/or reversing the toxicity of existing aggregates would represent a reasonable therapeutic strategy for treating these neurodegenerative diseases. Here we demonstrate that molecular chaperones of the heat shock protein 70 (Hsp70) family are potent inhibitors of tau aggregation in vitro, preventing the formation of both mature fibrils and oligomeric intermediates. Remarkably, addition of Hsp70 to a mixture of oligomeric and fibrillar tau aggregates prevents the toxic effect of these tau species on fast axonal transport, a critical process for neuronal function. When incubated with preformed tau aggregates, Hsp70 preferentially associated with oligomeric over fibrillar tau, suggesting that prefibrillar oligomeric tau aggregates play a prominent role in tau toxicity. Taken together, our data provide a novel molecular basis for the protective effect of Hsp70 in tauopathies.