Hexanucleotide repeat expansions in the C9ORF72 gene are causally associated with frontotemporal lobar dementia (FTLD) and/or amyotrophic lateral sclerosis (ALS). The physiological function of the normal C9ORF72 protein remains unclear. In this study, we characterized the subcellular localization of C9ORF72 to processing bodies (P-bodies) and its recruitment to stress granules (SGs) upon stress-related stimuli. Gain of function and loss of function experiments revealed that the long isoform of C9ORF72 protein regulates SG assembly. CRISPR/Cas9-mediated knockdown of C9ORF72 completely abolished SG formation, negatively impacted the expression of SG-associated proteins such as TIA-1 and HuR, and accelerated cell death. Loss of C9ORF72 expression further compromised cellular recovery responses after the removal of stress. Additionally, mimicking the pathogenic condition via the expression of hexanucleotide expansion upstream of C9ORF72 impaired the expression of the C9ORF72 protein, caused an abnormal accumulation of RNA foci, and led to the spontaneous formation of SGs. Our study identifies a novel function for normal C9ORF72 in SG assembly and sheds light into how the mutant expansions might impair SG formation and cellular-stress-related adaptive responses.