Genetic variants that hinder post-translational protein modifications by UFM1, UFMylation, cause encephalopathies. UFMylation regulates endoplasmic reticulum (ER) homeostasis, but how UFMylation deficiencies cause selective neurological defects is unknown. Using murine UFM1-deficient neurons, we investigated two types of UFMylation pathologies, UFM1 loss and expression of a pathogenic UFM1-R81C variant. We found that UFM1-deficiency confounds neuron development and synapse function. Mechanistically, UFM1 loss is associated with induction of ER stress, activation of the unfolded protein response (UPR) pathway, and reduced protein translation. These defects are rescued by wild-type UFM1, but only partially by UFM1-R81C. UFM1-deficient and UFM1-R81C-expressing neurons display distinct responses to ER stress, indicating that UFM1-R81C is not merely a loss-of-function variant. Exploring therapeutic options, we show that Trazodone, an inhibitor of the UPR, restores protein translation solely in UFM1-R81C-expressing neurons, and increases synapse numbers in both UFM1-KO and UFM1-R81C-expressing neurons. Our study unveils a pivotal role for UFMylation in neuronal development, provides a molecular understanding of the signaling mechanisms altered in UFM1-associated encephalopathies, and offers important insights into potential treatments for these disorders.