Several microsatellite-expansion diseases are characterized by the accumulation of RNA foci and RAN proteins, raising the possibility of a mechanistic connection. We explored this question using myotonic dystrophy type 2, a multisystemic disease thought to be primarily caused by RNA gain-of-function effects. We demonstrate that the DM2 CCTG⋅CAGG expansion expresses sense and antisense tetrapeptide poly-(LPAC) and poly-(QAGR) RAN proteins, respectively. In DM2 autopsy brains, LPAC is found in neurons, astrocytes, and glia in gray matter, and antisense QAGR proteins accumulate within white matter. LPAC and QAGR proteins are toxic to cells independent of RNA gain of function. RNA foci and nuclear sequestration of CCUG transcripts by MBNL1 is inversely correlated with LPAC expression. These data suggest a model that involves nuclear retention of expansion RNAs by RNA-binding proteins (RBPs) and an acute phase in which expansion RNAs exceed RBP sequestration capacity, are exported to the cytoplasm, and undergo RAN translation. VIDEO ABSTRACT.