AbstractAggregation of the RNA‐binding protein TAR DNA‐binding protein 43 (TDP‐43) is the key neuropathological feature of neurodegenerative diseases, including amyotrophic lateral sclerosis (ALS) and frontotemporal lobar degeneration (FTLD). In physiological conditions, TDP‐43 is predominantly nuclear, forms oligomers, and is contained in biomolecular condensates assembled by liquid–liquid phase separation (LLPS). In disease, TDP‐43 forms cytoplasmic or intranuclear inclusions. How TDP‐43 transitions from physiological to pathological states remains poorly understood. Using a variety of cellular systems to express structure‐based TDP‐43 variants, including human neurons and cell lines with near‐physiological expression levels, we show that oligomerization and RNA binding govern TDP‐43 stability, splicing functionality, LLPS, and subcellular localization. Importantly, our data reveal that TDP‐43 oligomerization is modulated by RNA binding. By mimicking the impaired proteasomal activity observed in ALS/FTLD patients, we found that monomeric TDP‐43 forms inclusions in the cytoplasm, whereas its RNA binding‐deficient counterpart aggregated in the nucleus. These differentially localized aggregates emerged via distinct pathways: LLPS‐driven aggregation in the nucleus and aggresome‐dependent inclusion formation in the cytoplasm. Therefore, our work unravels the origins of heterogeneous pathological species reminiscent of those occurring in TDP‐43 proteinopathy patients.