Fatal familial insomnia (FFI) is a rare neurodegenerative disease caused by a dominantly inherited single amino acid substitution (D178N) within the prion protein (PrP). No in vitro human brain tissue model for this disease has previously been available. Consequently, how this mutation exerts its damaging effect on brain cells is still unknown. Using CRISPR-Cas9 engineered induced pluripotent stem cells, we made D178N cerebral organoids and compared these with isotype control organoids. We found that, in the absence of other hallmarks of FFI, the D178N organoids exhibited astrogliosis with cellular oxidative stress. Abnormal post-translational processing of PrP was evident but no tissue deposition or propagation of mis-folded PrP isoforms were observed. Neuronal electrophysiological function was compromised and levels of neurotransmitters, particularly acetylcholine and GABA, altered. Underlying these dysfunctions were changes in cellular energy homeostasis, with substantially increased glycolytic and Krebs cycle intermediates, and greater mitochondrial activity. This increased energy demand in D178N organoids was associated with increased mitophagy and depletion of lipid droplets, in turn resulting in shifts of cellular lipid composition. Using a double mutation (178NN) we could confirm that most changes were caused by the presence of the mutation rather than interaction with PrP molecules lacking the mutation. Our data strongly suggests that shifting biosynthetic intermediates and oxidative stress, caused by an imbalance of energy supply and demand, results in astrogliosis with compromised neuronal activity in FFI organoids. They further support that many of the disease associated changes are due to a corruption of PrP function and do not require propagation of PrP mis-folding.