Abnormal deposition of tau in neurons is a hallmark of Alzheimer's disease and several other neurodegenerative disorders. In the past decades, extensive efforts have been made to explore the mechanistic pathways underlying the development of tauopathies. Recently, the discovery of tau droplet formation by liquid–liquid phase separation (LLPS) has received a great deal of attention. It has been reported that tau condensates have a biological role in promoting and stabilizing microtubule (MT) assembly. Furthermore, it has been hypothesized that the transition of phase‐separated tau droplets to a gel‐like state and then to fibrils is associated with the pathology of neurodegenerative diseases. In this review, we outline LLPS, the structural disorder that facilitates tau droplet formation, the effects of posttranslational modification of tau on condensate formation, the physiological function of tau droplets, the pathways from droplet to toxic fibrils, and the therapeutic strategies for tauopathies that might evolve from toxic droplets. We expect a deeper understanding of tau LLPS will provide additional insights into tau physiology and tauopathies.