Neuronal TDP-43-positive inclusions are neuropathological hallmark lesions in frontotemporal dementia (FTD) and amyotrophic lateral sclerosis (ALS). Pathogenic missense variants inTARDBP, the gene encoding TDP-43, can cause ALS and cluster in the C-terminal prion-like domain (PrLD), where they modulate the liquid condensation and aggregation properties of the protein. TDP-43-positive inclusions are also found in rimmed vacuole myopathies, including sporadic inclusion body myositis, but myopathy-causing TDP-43 variants have not been reported. Using genome-wide linkage analysis and whole exome sequencing in an extended five-generation family with an autosomal dominant rimmed vacuole myopathy, we identified a conclusively linked frameshift mutation in TDP-43 producing a C-terminally altered PrLD (TDP-43p.Trp385IlefsTer10) (maximum multipoint LOD-score 3.61). Patient-derived muscle biopsies showed TDP-43-positive sarcoplasmic inclusions, accumulation of autophagosomes and transcriptomes with abnormally spliced sarcomeric genes (includingTTNandNEB) and increased expression of muscle regeneration genes. In vitro phase separation assays demonstrated that TDP-43Trp385IlefsTer10does not form liquid-like condensates and readily forms solid-like fibrils indicating increased aggregation propensity compared to wild-type TDP-43. InDrosophilaTDP-43p.Trp385IlefsTer10behaved as a partial loss-of-function allele as it was able to rescue theTBPH(fly ortholog ofTARDBP) neurodevelopmental lethal null phenotype while showing strongly reduced toxic gain-of-function properties upon overexpression. Accordingly, TDP-43p.Trp385IlefsTer10showed reduced toxicity in a primary rat neuron disease model. Together, these genetic, pathological, in vitro and in vivo results demonstrate that TDP-43p.Trp385IlefsTer10is an aggregation-prone partial loss-of-function variant that causes autosomal dominant vacuolar myopathy but not ALS/FTD. Our study genetically links TDP-43 proteinopathy to myodegeneration, and reveals a tissue-specific role of the PrLD in directing pathology.Supplementary InformationThe online version contains supplementary material available at 10.1007/s00401-023-02565-1.