TDP‐43 is an RNA‐binding protein that forms ribonucleoprotein condensates via liquid‐liquid phase separation (LLPS) and regulates gene expression through specific RNA interactions. Loss of TDP‐43 protein homeostasis and dysfunction are tied to neurodegenerative disorders, mainly amyotrophic lateral sclerosis (ALS) and frontotemporal dementia. Alterations of TDP‐43 LLPS properties may be linked to protein aggregation. However, the mechanisms regulating TDP‐43 LLPS are ill‐defined, particularly how TDP‐43 association with specific RNA targets regulates TDP‐43 condensation remains unclear. We show that RNA binding strongly promotes TDP‐43 LLPS through sequence‐specific interactions. RNA‐driven condensation increases with the number of adjacent TDP‐43‐binding sites and is also mediated by multivalent interactions involving the amino and carboxy‐terminal TDP‐43 domains. The physiological relevance of RNA‐driven TDP‐43 condensation is supported by similar observations in mammalian cellular lysate. Importantly, we find that TDP‐43‐RNA association maintains liquid‐like properties of the condensates, which are disrupted in the presence of ALS‐linked TDP‐43 mutations. Altogether, RNA binding plays a central role in modulating TDP‐43 condensation while maintaining protein solubility, and defects in this RNA‐mediated activity may underpin TDP‐43‐associated pathogenesis.