For some neurological disorders, disease is primarily RNA mediated due to expression of non-coding microsatellite expansion RNAs (RNA^exp). Toxicity is thought to result from enhanced binding of proteins to these expansions and depletion from their normal cellular targets. However, experimental evidence for this sequestration model is lacking. Here, we use HITS-CLIP and pre-mRNA processing analysis of human control versus myotonic dystrophy (DM) brains to provide compelling evidence for this RNA toxicity model. MBNL2 binds directly to DM repeat expansions in the brain, resulting in depletion from its normal RNA targets with downstream effects on alternative splicing and polyadenylation. Similar RNA processing defects were detected in Mbnl compound-knockout mice, highlighted by dysregulation of Mapt splicing and fetal tau isoform expression in adults. These results demonstrate that MBNL proteins are directly sequestered by RNA^exp in the DM brain and introduce a powerful experimental tool to evaluate RNA-mediated toxicity in other expansion diseases.