Tau protein plays an important role in the biology of stress granules and in the stress response of neurons, but the nature of these biochemical interactions is not known. Here we show that the interaction of tau with RNA and the RNA binding protein TIA1 is sufficient to drive phase separation of tau at physiological concentrations, without the requirement for artificial crowding agents such as polyethylene glycol (PEG). We further show that phase separation of tau in the presence of RNA and TIA1 generates abundant tau oligomers. Prior studies indicate that recombinant tau readily forms oligomers and fibrils in vitro in the presence of polyanionic agents, including RNA, but the resulting tau aggregates are not particularly toxic. We discover that tau oligomers generated during copartitioning with TIA1 are significantly more toxic than tau aggregates generated by incubation with RNA alone or phase-separated tau complexes generated by incubation with artificial crowding agents. This pathway identifies a potentially important source for generation of toxic tau oligomers in tau-related neurodegenerative diseases. Our results also reveal a general principle that phase-separated RBP droplets provide a vehicle for coassortment of selected proteins. Tau selectively copartitions with TIA1 under physiological conditions, emphasizing the importance of TIA1 for tau biology. Other RBPs, such as G3BP1, are able to copartition with tau, but this happens only in the presence of crowding agents. This type of selective mixing might provide a basis through which membraneless organelles bring together functionally relevant proteins to promote particular biological activities.