In Alzheimer's disease, tau is predominantly acetylated at K174, K274, K280, and K281 residues. The acetylation of K274-tau is linked with memory loss and dementia. In this study, we have examined the molecular mechanism of the toxicity of acetylated K274-tau. We incorporated an acetylation mimicking mutation at K274 (K→Q) residue of tau. The mutation (K274Q) strongly reduced the ability of tau to bind to tubulin and also to polymerize tubulin while K274R mutation did not reduce the ability of tau either to bind or polymerize tubulin. In addition, K274Q-tau displayed a higher aggregation propensity than wild-type tau as evident from thioflavin S fluorescence, tryptophan fluorescence, and electron microscopic images. Furthermore, dynamic light scattering, atomic force microscopy, and dot blot analysis using an oligomer-specific antibody suggested that K274Q mutation enhanced the oligomerization of tau. The K274Q mutation also strongly decreased the critical concentration for the liquid–liquid phase separation of tau. The oligomeric forms of K274Q-tau were found to be more toxic than wild tau to neuroblastoma cells. Using circular dichroism and fluorescence spectroscopy, we provide evidence indicating that the acetylation mimicking mutation (K274Q) induced conformational changes in tau. The results suggested that the acetylation of tau at 274 residues can increase tau aggregation and enhance the cytotoxicity of tau oligomers.