Cells have evolved molecular chaperones that modulate phase separation and misfolding of amyloidogenic proteins to prevent neurodegenerative diseases. Protein disulfide isomerase (PDI), mainly located at the endoplasmic reticulum and also present in the cytosol, acts as both an enzyme and a molecular chaperone. PDI is observed to be S-nitrosylated in brains of Alzheimer's disease patients, but the mechanism has remained elusive. We herein report that both wild-type PDI and its quadruple cysteine mutant only having chaperone activity significantly inhibit pathological phosphorylation and abnormal aggregation of Tau in cells, and significantly decrease the mitochondrial damage and Tau cytotoxicity resulting from Tau aberrant aggregation, highlighting the chaperone property of PDI. More importantly, we show that wild-type PDI is selectively recruited by liquid droplets of Tau, which significantly inhibits phase separation and stress granule formation of Tau, whereas S-nitrosylation of PDI abrogates the recruitment and inhibition. These findings demonstrate how phase separation of Tau is physiologically regulated by PDI and how S-nitrosylation of PDI, a perturbation in this regulation, leads to disease.