Monoclonal gammopathies are frequently complicated by kidney lesions that increase the disease morbidity and mortality. In particular, abnormal Ig free light chains (LCs) may accumulate within epithelial cells, causing proximal tubule (PT) dysfunction and renal Fanconi syndrome (RFS). To investigate the mechanisms linking LC accumulation and PT dysfunction, we used transgenic mice overexpressing human control or RFS-associated κLCs (RFS-κLCs) and primary cultures of mouse PT cells exposed to low doses of corresponding human κLCs (25 μg/ml). Before the onset of renal failure, mice overexpressing RFS-κLCs showed PT dysfunction related to loss of apical transporters and receptors and increased PT cell proliferation rates associated with lysosomal accumulation of κLCs. Exposure of PT cells to RFS-κLCs resulted in κLC accumulation within enlarged and dysfunctional lysosomes, alteration of cellular dynamics, defective proteolysis and hydrolase maturation, and impaired lysosomal acidification. These changes were specific to the RFS-κLC variable (V) sequence, because they did not occur with control LCs or the same RFS-κLC carrying a single substitution (Ala30→Ser) in the V domain. The lysosomal alterations induced by RFS-κLCs were reflected in increased cell proliferation, decreased apical expression of endocytic receptors, and defective endocytosis. These results reveal that specific κLCs accumulate within lysosomes, altering lysosome dynamics and proteolytic function through defective acidification, thereby causing dedifferentiation and loss of reabsorptive capacity of PT cells. The characterization of these early events, which are similar to those encountered in congenital lysosomal disorders, provides a basis for the reported differential LC toxicity and new perspectives on LC-induced RFS.