Dysregulation of neuronal excitability underlies the pathogenesis of tauopathies, including frontotemporal dementia (FTD) with tau inclusions. A majority of FTD-causing tau mutations are located in the microtubule-binding domain, but how these mutations alter neuronal excitability is largely unknown. Here, using CRISPR/Cas9-based gene editing in human pluripotent stem cell (iPSC)-derived neurons and isogenic controls, we show that the FTD-causing V337M tau mutation impairs activity-dependent plasticity of the cytoskeleton in the axon initial segment (AIS). Extracellular recordings by multi-electrode arrays (MEAs) revealed that the V337M tau mutation in human neurons leads to an abnormal increase in neuronal activity in response to chronic depolarization. Stochastic optical reconstruction microscopy of human neurons with this mutation showed that AIS plasticity is impaired by the abnormal accumulation of end-binding protein 3 (EB3) in the AIS submembrane region. These findings expand our understanding of how FTD-causing tau mutations dysregulate components of the neuronal cytoskeleton, leading to network dysfunction. Display omitted •The FTD-causing V337M tau mutation impairs axon initial segment (AIS) plasticity•The V337M tau mutation impairs activity homeostasis•The V337M tau mutation leads to accumulation of EB3 in the AIS•EB3 is critical for regulating AIS plasticity and activity homeostasis Frontotemporal dementia (FTD) with tau pathology is associated with aberrant hyperexcitability of neuronal networks. In human iPSC-derived neurons, Sohn et al. demonstrates that FTD-causing tau mutation abolishes activity-dependent plasticity of the axon initial segment and impairs homeostasis of neuronal activity via impacting AIS cytoskeleton, resulting in dysregulation of neuronal network function.