© 2017 Zhang et al. Nonmembrane-bound organelles that behave like liquid droplets are widespread among eukaryotic cells. Their dysregulation appears to be a critical step in several neurodegenerative conditions. Here, we report that tau protein, the primary constituent of Alzheimer neurofibrillary tangles, can form liquid droplets and therefore has the necessary biophysical properties to undergo liquid-liquid phase separation (LLPS) in cells. Consonant with the factors that induce LLPS, tau is an intrinsically disordered protein that complexes with RNA to form droplets. Uniquely, the pool of RNAs to which tau binds in living cells are tRNAs. This phase state of tau is held in an approximately 1:1 charge balance across the protein and the nucleic acid constituents, and can thus be maximal at different RNA:tau mass ratios, depending on the biopolymer constituents involved. This feature is characteristic of complex coacervation. We furthermore show that the LLPS process is directly and sensitively tuned by salt concentration and temperature, implying it is modulated by both electrostatic interactions between the involved protein and nucleic acid constituents, as well as net changes in entropy. Despite the high protein concentration within the complex coacervate phase, tau is locally freely tumbling and capable of diffusing through the droplet interior. In fact, tau in the condensed phase state does not reveal any immediate changes in local protein packing, local conformations and local protein dynamics from that of tau in the dilute solution state. In contrast, the population of aggregation-prone tau as induced by the complexation with heparin is accompanied by large changes in local tau conformations and irreversible aggregation. However, prolonged residency within the droplet state eventually results in the emergence of detectable β-sheet structures according to thioflavin-T assay. These findings suggest that the droplet state can incubate tau and predispose the protein toward the formation of insoluble fibrils.