With predictions showing that 131.5 million people worldwide will be living with dementia by 2050, an understanding of the molecular mechanisms underpinning disease is crucial in the hunt for novel therapeutics and for biomarkers to detect disease early and/or monitor disease progression. The metabolism of the microtubule-associated protein tau is altered in different dementias, the so-called tauopathies. Tau detaches from microtubules, aggregates into oligomers and neurofibrillary tangles, which can be secreted from neurons, and spreads through the brain during disease progression. Post-translational modifications exacerbate the production of both oligomeric and soluble forms of tau, with proteolysis by a range of different proteases being a crucial driver. However, the impact of tau proteolysis on disease progression has been overlooked until recently. Studies have highlighted that proteolytic fragments of tau can drive neurodegeneration in a fragment-dependent manner as a result of aggregation and/or transcellular propagation. Proteolytic fragments of tau have been found in the cerebrospinal fluid and plasma of patients with different tauopathies, providing an opportunity to develop these fragments as novel disease progression biomarkers. A range of therapeutic strategies have been proposed to halt the toxicity associated with proteolysis, including reducing protease expression and/or activity, selectively inhibiting protease-substrate interactions, and blocking the action of the resulting fragments. This review highlights the importance of tau proteolysis in the pathogenesis of tauopathies, identifies putative sites during tau fragment-mediated neurodegeneration that could be targeted therapeutically, and discusses the potential use of proteolytic fragments of tau as biomarkers for different tauopathies.