The autophagy-lysosomal pathway plays a critical role in the clearance of tau protein aggregates that deposit in the brain in tauopathies, including Alzheimer’s disease and defects in this system are associated with disease pathogenesis. Here, we report that expression of Tau35, a tauopathy-associated carboxy-terminal fragment of tau, reduces beclin-1 and microtubule-associated protein 1A/1B-light chain 3, indicating that Tau35 disrupts autophagy in cells. We demonstrate that Tau35 reduces autophagic flux by blocking activation of 5' AMP-activated protein kinase and activating mammalian target of rapamycin complex 1 (mTORC1), as seen by increased phosphorylation of S6 ribosomal protein and a reduction in phosphorylated raptor. Tau35 also induces neutral lipid accumulation in cells, indicating a block of autophagic clearance and a deficit in lysosomal degradative capacity. In support of this view, reductions in lysosomal-associated membrane protein 2 and cathepsin D in cells expressing Tau35 are accompanied by its increased colocalisation with lysosomes. These deleterious effects of Tau35 on autophagy are not apparent with full-length tau, indicating that sequences in the amino-terminal half of tau may be involved in the regulation of mTORC1 and autophagic activity. Notably, upon induction of autophagy by Torin 1, both Tau35 and full-length tau inhibited nuclear translocation of transcription factor EB (TFEB), a key regulator of lysosomal biogenesis. These findings implicate autophagic and lysosomal dysfunction as key pathological mechanisms through which abnormal tau could lead to the development and progression of tauopathy.