The microtubule-associated protein tau is involved in a number of neurodegenerative disorders, including Alzheimer's disease. Previous studies have linked oxidative stress and subsequent DNA damage to neuronal death in Alzheimer's disease and related tauopathies. Given that DNA damage can substantially alter chromatin structure, we examined epigenetic changes in tau-induced neurodegeneration. We found widespread loss of heterochromatin in tau transgenic Drosophila and mice and in human Alzheimer's disease. Notably, genetic rescue of tau-induced heterochromatin loss substantially reduced neurodegeneration in Drosophila. We identified oxidative stress and subsequent DNA damage as a mechanistic link between transgenic tau expression and heterochromatin relaxation, and found that heterochromatin loss permitted aberrant gene expression in tauopathies. Furthermore, large-scale analyses from the brains of individuals with Alzheimer's disease revealed a widespread transcriptional increase in genes that were heterochromatically silenced in controls. Our results establish heterochromatin loss as a toxic effector of tau-induced neurodegeneration and identify chromatin structure as a potential therapeutic target in Alzheimer's disease.