Prion diseases are fatal neurological diseases characterized by central nervous system deposition of abnormal forms of a membrane glycoprotein designated PrP (prion protein). Tg(PG14) transgenic mice express PrP that harbor a nine-octapeptide insertional mutation homologous to one described in a familial prion disease of humans. Tg(PG14) mice spontaneously develop a fatal neurological illness accompanied by massive apoptosis of cerebellar granule neurons and accumulation of an aggregated and weakly protease-resistant form of PrP that is not infectious. Previous light microscopic analyses of these mice left open questions regarding the subcellular distribution of the mutant protein and the nature of the neuropathological lesions produced. To address these questions, we undertook an immunogold electron microscopic study of Tg(PG14) mice. We found that mutant PrP is localized primarily on the plasma membrane of dendrites and unmyelinated axons in the hippocampus and cerebellum, with little labeling of either neuronal cell bodies or intracellular organelles. PrP deposits were shown to be associated with degenerative changes in dendritic structure. We also describe for the first time marked pathology in myelinated axons, and alterations in the axon/oligodendrocyte interface. Taken together, our results suggest cellular mechanisms by which mutant PrPs produce pathology. In addition, they highlight distinctions between familial and infectious prion disorders at the ultrastructural level that correlate with differences in cellular trafficking of the disease-associated PrP forms.