Neurofibrillary degeneration associated with the formation of intraneuronal neurofibrillary tangles of paired helical filaments (PHF) and 2.1 nm tau filaments is one of the most characteristic brain lesions of Alzheimer's disease. The major polypeptides of PHF are the microtubule associated protein tau. tau in PHF is present in abnormally phosphorylated forms. In addition to the PHF, the abnormal tau is present in soluble non-PHF form in the Alzheimer's disease brain. The level of tau in Alzheimer's disease neocortex is severalfold higher than in aged control brain, and this increase is in the form of the abnormally phosphorylated protein. The abnormally phosphorylated tau does not promote the assembly of tubulin into microtubules in vitro, and it inhibits the normal tau-stimulated microtubule assembly. After in vitro dephosphorylation both PHF and non-PHF abnormal tau stimulate the assembly of tubulin into microtubules. The activities of phosphoseryl/phosphothreonyl protein phosphatase 2A and nonreceptor phosphotyrosyl phosphatase(s) are decreased in AD brain. It is suggested that 1. A defect(s) in the protein phosphorylation/dephosphorylation system is one of the early events in the neurofibrillary pathology in AD; 2. A decrease in protein phosphatase activities, at least in part, allows the hyperphosphorylation of tau; and 3. Abnormal phosphorylation and polymerization of tau into PHF most probably lead to a breakdown of the microtubule system and consequently to neuronal degeneration.