Levothyroxine (LT4) is a form of thyroid hormone used to treat hypothyroidism. In the brain, T4 is converted to the active form T3 by the type 2 deiodinase (D2). Thus, it is intriguing that carriers of the Thr92Ala polymorphism in the D2 gene (DIO2) exhibit clinical improvement when liothyronine (LT3) is added to LT4 therapy. Here we report that D2 is a cargo protein in endoplasmic reticulum Golgi intermediary compartment (ERGIC) vesicles, recycling between ER and Golgi. The Thr92 to Ala substitution (Ala92-D2) caused ER stress and activated the unfolded protein response (UPR); Ala92-D2 accumulated in the trans-Golgi and generated less T3, all of which was restored by eliminating ER stress with the chemical chaperone 4-phenyl butyric acid (4-PBA). An Ala92-Dio2 polymorphism-carrying mouse exhibited UPR and hypothyroidism in distinct brain areas. The mouse refrained from physical activity, slept more and required additional time to memorize objects. Enhancing T3 signaling in the brain with LT3 improved cognition, whereas restoring proteostasis with 4-PBA eliminated the Ala92-Dio2 phenotype. In contrast, primary hypothyroidism intensified the Ala92-Dio2 phenotype, with only partial response to LT4 therapy. Disruption of cellular proteostasis and reduced Ala92-D2 activity may explain the failure of LT4 therapy in carriers of Thr92Ala-DIO2.