Deposition of tau protein aggregates in the brain of affected individuals is a defining feature of "tauopathies," including Alzheimer's disease. Studies of human brain tissue and various model systems of tauopathy report that toxic forms of tau negatively affect nuclear and genomic architecture, identifying pathogenic tau-induced heterochromatin decondensation and consequent retrotransposon activation as a causal mediator of neurodegeneration. On the basis of their similarity to retroviruses, retrotransposons drive neuroinflammation via toxic intermediates, including double-stranded RNA (dsRNA). We find that dsRNA and dsRNA sensing machinery are elevated in astrocytes of postmortem brain tissue from patients with Alzheimer's disease and progressive supranuclear palsy and in brains of tau transgenic mice. Using a Drosophila model of tauopathy, we identify specific tau-induced retrotransposons that form dsRNA and find that pathogenic tau and heterochromatin decondensation causally drive dsRNA-mediated neurodegeneration and neuroinflammation. Our study suggests that pathogenic tau-induced heterochromatin decondensation and retrotransposon activation cause elevation of inflammatory, transposable element-derived dsRNA in the adult brain.