Hyperphosphorylated tau has a critical role in tauopathies such as Alzheimer's disease and frontotemporal dementia, impairing neuronal function and eventually leading to neurodegeneration. A critical role for tau is supported by studies in transgenic mouse models that express the P301L tau mutation found in cases of familial frontotemporal dementia, with the accumulation of hyperphosphorylated tau in the hippocampus causing reductions in hippocampal long-term potentiation and impairments in spatial learning and memory. However, what has remained unexplored is the role of hyperphosphorylated tau in reducing neuronal excitability. Here, we show in two complementary P301L tau transgenic mouse models that hyperphosphorylated tau induces a more depolarized threshold for action potential initiation and reduces firing in hippocampal CA1 neurons, which was rescued by the suppression of transgenic tau. Furthermore, using mutagenesis and primary hippocampal neuronal cultures, we reveal that this reduction in neuronal excitability results from the relocation of the axon initial segment (AIS) down the axon in a tau phosphorylation-dependent manner. We also demonstrate that this effect is microtubule-dependent. In addition, pharmacological stabilization was found to prevent both the structural and functional deficits caused by tau hyperphosphorylation. Finally, we demonstrate that the AIS of neurons from tau transgenic mice is further down the axon, which correlates with a reduction in excitability. We therefore propose that a reduction in hippocampal excitability due to a tau-mediated distal relocalization of the AIS contributes to the hippocampal dysfunction observed in tauopathies.