TAR DNA binding protein of 43 kDa (TDP-43) is a major component of the ubiquitin-positive inclusions found in the brain of patients with frontotemporal lobar degeneration (FTLD-U) and amyotrophic lateral sclerosis (ALS). Here, we report that expression of TDP-43 C-terminal fragments as green fluorescent protein (GFP) fusions in SH-SY5Y cells results in the formation of abnormally phosphorylated and ubiquitinated inclusions that are similar to those found in FTLD-U and ALS. Co-expression of DsRed-tagged full-length TDP-43 with GFP-tagged C-terminal fragments of TDP-43 causes formation of cytoplasmic inclusions positive for both GFP and DsRed. Cells with GFP and DsRed positive inclusions lack normal nuclear staining for endogenous TDP-43. These results suggest that GFP-tagged C-terminal fragments of TDP-43 are bound not only to transfected DsRed-full-length TDP-43 but also to endogenous TDP-43. Endogenous TDP-43 may be recruited to cytoplasmic aggregates of TDP-43 C-terminal fragments, which results in the failure of its nuclear localization and function. Interestingly, expression of GFP-tagged TDP-43 C-terminal fragments harboring pathogenic mutations that cause ALS significantly enhances the formation of inclusions. We also identified cleavage sites of TDP-43 C-terminal fragments deposited in the FTLD-U brains using mass spectrometric analyses. We propose that generation and aggregation of phosphorylated C-terminal fragments of TDP-43 play a primary role in the formation of inclusions and resultant loss of normal TDP-43 localization, leading to neuronal degeneration in TDP-43 proteinopathy.