The expression of polyglutamine-expanded mutant proteins in Huntington's disease and other neurodegenerative disorders is associated with the formation of intraneural inclusions. These aggregates could potentially cause cellular toxicity by sequestering essential proteins possessing normal polyQ repeats, including the transcription factors TBP and CBP. We show, in vitro and in cells, that monomers or small soluble oligomers of huntingtin exon1 accumulate in the nucleus and inhibit the function of TBP in a polyQ-dependent manner. FRET experiments indicate that these toxic forms are generated through a conformational rearrangement in huntingtin. Interaction of toxic huntingtin with the benign polyQ repeat of TBP structurally destabilizes the transcription factor, independent of the formation of insoluble coaggregates. Hsp70/Hsp40 chaperones interfere with the conformational change in mutant huntingtin and inhibit the deactivation of TBP. These results outline a molecular mechanism of cellular toxicity in polyQ disease and can explain the beneficial effects of molecular chaperones.