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PrPC, the cellular isoform of the prion protein, serves to transduce the neurotoxic effects of PrPSc, the infectious isoform, but how this occurs is mysterious. Here, using a combination of electrophysiological, cellular, and biophysical techniques, we show that the flexible, N-terminal domain of PrPC functions as a powerful toxicity-transducing effector whose activity is tightly regulated in cis by the globular C-terminal domain. Ligands binding to the N-terminal domain abolish the spontaneous ionic currents associated with neurotoxic mutants of PrP, and the isolated N-terminal domain induces currents when expressed in the absence of the C-terminal domain. Anti-PrP antibodies targeting epitopes in the C-terminal domain induce currents, and cause degeneration of dendrites on murine hippocampal neurons, effects that entirely dependent on the effector function of the N-terminus. NMR experiments demonstrate intramolecular docking between N- and C-terminal domains of PrPC, revealing a novel auto-inhibitory mechanism that regulates the functional activity of PrPC.