Prion diseases are fatal transmissible neurodegenerative conditions of humans and animals that arise through neurotoxicity induced by PrP misfolding. The cellular and molecular mechanisms of prion-induced neurotoxicity remain undefined. Understanding these processes will underpin therapeutic and control strategies for human and animal prion diseases, respectively. Prion diseases are difficult to study in their natural hosts and require the use of tractable animal models. Here we used RNA-Seq-based transcriptome analysis of prion-exposed Drosophila to probe the mechanism of prion-induced neurotoxicity. Adult Drosophila transgenic for pan neuronal expression of ovine PrP targeted to the plasma membrane exhibit a neurotoxic phenotype evidenced by decreased locomotor activity after exposure to ovine prions at the larval stage. Pathway analysis and quantitative PCR of genes differentially expressed in prion-infected Drosophila revealed up-regulation of cell cycle activity and DNA damage response, followed by down-regulation of eIF2 and mTOR signalling. Mitochondrial dysfunction was identified as the principal toxicity pathway in prion-exposed PrP transgenic Drosophila. The transcriptomic changes we observed were specific to PrP targeted to the plasma membrane since these prion-induced gene expression changes were not evident in similarly treated Drosophila transgenic for cytosolic pan neuronal PrP expression, or in non-transgenic control flies. Collectively, our data indicate that aberrant cell cycle activity, repression of protein synthesis and altered mitochondrial function are key events involved in prion-induced neurotoxicity, and correlate with those identified in mammalian hosts undergoing prion disease. These studies highlight the use of PrP transgenic Drosophila as a genetically well-defined tractable host to study mammalian prion biology.