Autoimmunity affects 10% of the population. Within this umbrella, autoantibody-mediated diseases targeting one autoantigen provide a unique opportunity to comprehensively understand the developmental pathway of disease-causing B cells and autoantibodies. While such autoreactivities are believed to be generated during germinal centre reactions, the roles of earlier immune checkpoints in autoantigen-specific B cell tolerance are poorly understood. We address this concept in patients with CASPR2-autoantibody encephalitis and healthy controls. In both groups, comparable and high (~0.5%) frequencies of unmutated CASPR2-reactive naïve B cells were identified. By contrast, CASPR2-reactive memory B cells were exclusive to patients, and their B cell receptors demonstrated affinity-enhancing somatic mutations with heterogenous binding kinetics. These effector molecules possessed epitope-dependent pathogenic effects in vitro neuronal cultures and in vivo. The unmutated common ancestors of these memory B cells showed a distinctive balance between strong CASPR2 reactivity and very limited binding across the remaining human proteome. Our results are the first to propose mechanisms underlying autoantigen-specific tolerance in humans. We identify permissive central tolerance, defective peripheral tolerance and heterogenous autoantibody binding properties as sequential pathogenic steps which licence CASPR2-directed pathology. By leveraging the basic immunobiology, we rationally direct tolerance-restoring approaches in CASPR2-antibody diseases. This paradigm is applicable across autoimmune conditions.