Tauopathies, including Alzheimer's disease, are a group of neurodegenerative disorders characterized by pathological aggregation of the microtubule binding protein tau. Recent studies suggest that toxic tau oligomers, which are soluble and distinct from insoluble beta-sheet fibrils, are central players in neuronal cell death. To exploit this new therapeutic window, we engineered two first-in-class FRET based biosensors that monitor tau conformations in cells. Because this new technology platform operates in cells, it enables high-throughput screening of small molecules that target tau oligomers while avoiding the uncertainties of idiosyncratic in vitro preparations of tau assemblies from purified protein. We found a small molecule, MK-886, that disrupts tau oligomers and reduces tau-induced cell cytotoxicity with nanomolar potency. Using SPR and an advanced single-molecule FRET technique, we show that MK-886 directly binds to tau and specifically perturbs the folding of tau monomer in the proline-rich and microtubule-binding regions. Furthermore, we show that MK-886 accelerates the tau aggregation lag phase using a thioflavin-T assay, implying that the compound stabilizes a non-toxic, on-pathway oligomer. The technology described here should generalize to the study and targeting of conformational ensembles within the aggregation pathways of most intrinsically disordered proteins.