Tau is a microtubule-associated protein often found in neurofibrillary tangles (NFTs) in the brains of patients with Alzheimer's disease (AD). Beyond this context, mounting evidence suggests that tau localizes into the nucleus, where it may play a role in DNA protection and heterochromatin regulation. Models of tau depletion or pathology show loss of genetically silent heterochromatin, aberrant expression of heterochromatic genes, and transposable element activation. The molecular mechanisms behind these observations are currently unclear. Using in vitro biophysical experiments, here we demonstrate that tau can undergo liquid-liquid phase separation (LLPS) with DNA, mononucleosomes, and reconstituted nucleosome arrays under low salt conditions. Low concentrations of tau promote chromatin compaction and protect DNA from digestion. While the material state of samples at physiological salt is dominated by chromatin oligomerization, tau can still associate strongly and reversibly with nucleosome arrays. These properties are driven by tau's strong interactions with linker and nucleosomal DNA, while magic angle spinning (MAS) solid-state NMR experiments show that tau binding does not drastically alter nucleosome structure and dynamics. In addition, tau co-localizes into droplets formed by nucleosome arrays and phosphorylated HP1α, a key heterochromatin constituent thought to function through an LLPS mechanism. Importantly, LLPS and chromatin interactions are disrupted by aberrant tau hyperphosphorylation. These biophysical properties suggest that tau may directly impact DNA and chromatin accessibility and that loss of these interactions could contribute to the aberrant nuclear effects seen in tau pathology.