Despite the important role of prion domains in neurodegenerative disease, their physiological function has remained enigmatic. Previous work with yeast prions has defined prion domains as sequences that form self-propagating aggregates. Here, we uncovered an unexpected function of the canonical yeast prion protein Sup35. In stressed conditions, Sup35 formed protective gels via pH-regulated liquid-like phase separation followed by gelation. Phase separation was mediated by the N-terminal prion domain and regulated by the adjacent pH sensor domain. Phase separation promoted yeast cell survival by rescuing the essential Sup35 translation factor from stress-induced damage. Thus, prion-like domains represent conserved environmental stress sensors that facilitate rapid adaptation in unstable environments by modifying protein phase behavior.