Between 1986 and 1989, she was a post-doctoral fellow at the University of California, San Francisco where she researched prion diseases and published with Stanley Prusiner. In 1989, she was the first author on a  paper published in Nature, entitled "Linkage of a prion protein missense variant to Gerstmann‑Sträussler syndrome", describing the discovery of a mutation linked to a neurodegenerative disease. She was the first author on a paper published in 1990 in Science, entitled "Spontaneous neurodegeneration in transgenic mice with mutant prion protein", describing the creation of a transgenic mouse modeling a neurodegenerative disease. According to the Minneapolis Star Tribune, she helped prove Prusiner's theory that prions cause neurodegenerative diseases. Prusiner recognized her contribution towards the Nobel Prize he won for that work, saying that Karen Hsiao "discovered a mutation in the PrP gene that caused familial disease and reproduced the disease in transgenic mice".