Beta-cleavage of the neurodegenerative disease-associated prion protein (PrP) protects cells from death induced by oxidative insults. The beta-cleavage event produces two fragments, designated N2 and C2. We investigated the role of the N2 fragment (residues 23-89) in cellular stress response, determining mechanisms involved and regions important for this reaction. The N2 fragment differentially modulated the reactive oxygen species (ROS) response induced by serum deprivation, with amelioration when copper bound. Amino acid residues 23-50 alone mediated a ROS reduction response. PrP23-50 ROS reduction was not due to copper binding or direct antioxidant activity, but was instead mediated through proteoglycan binding partners localised in or interacting with cholesterol-rich membrane domains. Furthermore, mutational analyses of both PrP23-50 and N2 showed that their protective capacity requires the sterically constraining double proline motif within the N-terminal polybasic region. Our findings show that N2 is a biologically active fragment that is able to modulate stress-induced intracellular ROS through interaction of its structurally defined N-terminal polybasic region with cell-surface proteoglycans.