Misfolding of proteins in the biosynthetic pathway in neurons may cause disturbed protein homeostasis and neurodegeneration. The prion protein (PrP(C)) is a GPI-anchored protein that resides at the plasma membrane and may be misfolded to PrP(Sc) leading to prion diseases. We show that a deletion in the C-terminal domain of PrP(C) (PrPΔ214-229) leads to partial retention in the secretory pathway causing a fatal neurodegenerative disease in mice that is partially rescued by co-expression of PrP(C). Transgenic (Tg(PrPΔ214-229)) mice show extensive neuronal loss in hippocampus and cerebellum and activation of p38-MAPK. In cell culture under stress conditions, PrPΔ214-229 accumulates in the Golgi apparatus possibly representing transit to the Rapid ER Stress-induced ExporT (RESET) pathway together with p38-MAPK activation. Here we describe a novel pathway linking retention of a GPI-anchored protein in the early secretory pathway to p38-MAPK activation and a neurodegenerative phenotype in transgenic mice.