Inclusion body myopathy associated with Paget's disease of bone and frontotemporal dementia (IBMPFD) is a dominantly inherited degenerative disorder caused by mutations in the valosin-containing protein (VCP7) gene. VCP (p97 in mouse, TER94 in Drosophila melanogaster, and CDC48 in Saccharomyces cerevisiae) is a highly conserved AAA(+) (ATPases associated with multiple cellular activities) ATPase that regulates a wide array of cellular processes. The mechanism of IBMPFD pathogenesis is unknown. To elucidate the pathogenic mechanism, we developed and characterized a Drosophila model of IBMPFD (mutant-VCP-related degeneration). Based on genetic screening of this model, we identified three RNA-binding proteins that dominantly suppressed degeneration; one of these was TBPH, the Drosophila homolog of TAR (trans-activating response region) DNA-binding protein 43 (TDP-43). Here we demonstrate that VCP and TDP-43 interact genetically and that disease-causing mutations in VCP lead to redistribution of TDP-43 to the cytoplasm in vitro and in vivo, replicating the major pathology observed in IBMPFD and other TDP-43 proteinopathies. We also demonstrate that TDP-43 redistribution from the nucleus to the cytoplasm is sufficient to induce cytotoxicity. Furthermore, we determined that a pathogenic mutation in TDP-43 promotes redistribution to the cytoplasm and enhances the genetic interaction with VCP. Together, our results show that degeneration associated with VCP mutations is mediated in part by toxic gain of function of TDP-43 in the cytoplasm. We suggest that these findings are likely relevant to the pathogenic mechanism of a broad array of TDP-43 proteinopathies, including frontotemporal lobar degeneration and amyotrophic lateral sclerosis.