Small heat shock proteins (sHsps) are molecular chaperones that protect cells from cytotoxic effects of protein misfolding and aggregation. HspB1, an sHsp commonly associated with senile plaques in Alzheimer’s disease (AD), prevents the toxic effects of Aβ aggregates in vitro. However, the mechanism of this chaperone activity is poorly understood. Here, we observed that in two distinct transgenic mouse models of AD, mouse HspB1 (Hsp25) localized to the penumbral areas of plaques. We have demonstrated that substoichiometric amounts of human HspB1 (Hsp27) abolish the toxicity of Aβ oligomers on N2a (mouse neuroblastoma) cells. Using biochemical methods, spectroscopy, light scattering, and microscopy methods, we found that HspB1 sequesters toxic Aβ oligomers and converts them into large nontoxic aggregates. HspB1 was overexpressed in N2a cells in response to treatment with Aβ oligomers. Cultured neurons from HspB1-deficient mice were more sensitive to oligomer-mediated toxicity than were those from wild-type mice. Our results suggest that sequestration of oligomers by HspB1 constitutes a novel cytoprotective mechanism of proteostasis. Whether chaperone-mediated cytoprotective sequestration of toxic aggregates may bear clues to plaque deposition and may have potential therapeutic implications must be investigated in the future.