Prion diseases are fatal infectious neurodegenerative disorders in man and animals associated with the accumulation of the pathogenic isoform PrPSc of the host-encoded prion protein (PrPc). A profound conformational change of PrPc underlies formation of PrPSc and prion propagation involves conversion of PrPc substrate by direct interaction with PrPSc template. Identifying the interfaces and modalities of inter-molecular interactions of PrPs will highly advance our understanding of prion propagation in particular and of prion-like mechanisms in general. To identify the region critical for inter-molecular interactions of PrP, we exploited here dominant-negative inhibition (DNI) effects of conversion-incompetent, internally-deleted PrP (ΔPrP) on co-expressed conversion-competent PrP. We created a series of ΔPrPs with different lengths of deletions in the region between first and second α-helix (H1∼H2) which was recently postulated to be of importance in prion species barrier and PrP fibril formation. As previously reported, ΔPrPs uniformly exhibited aberrant properties including detergent insolubility, limited protease digestion resistance, high-mannose type N-linked glycans, and intracellular localization. Although formerly controversial, we demonstrate here that ΔPrPs have a GPI anchor attached. Surprisingly, despite very similar biochemical and cell-biological properties, DNI efficiencies of ΔPrPs varied significantly, dependant on location and inversely correlated with the size of deletion. This data demonstrates that H1∼H2 and the region C-terminal to it are critically important for efficient DNI. It also suggests that this region is involved in PrP-PrP interaction and conversion of PrPC into PrPSc. To reconcile the paradox of how an intracellular PrP can exert DNI, we demonstrate that ΔPrPs are subject to both proteasomal and lysosomal/autophagic degradation pathways. Using autophagy pathways ΔPrPs obtain access to the locale of prion conversion and PrPSc recycling and can exert DNI there. This shows that the intracellular trafficking of PrPs is more complex than previously anticipated.