We report a theoretical study of the nonadiabatic fragmentation dynamics of ionized neon clusters embedded in helium nanodroplets for cluster sizes up to n=14 atoms. The dynamics of the neon atoms is modeled using the molecular dynamics with quantum transitions method of Tully [J. Chem. Phys. 93, 1061 (1990)] with the nuclei treated classically and transitions between electronic states quantum mechanically. The potential-energy surfaces are derived from a diatomics-in-molecules model to which induced dipole-induced dipole interactions are added. The effect of the spin-orbit interaction is also discussed. The helium environment is modeled by a friction force acting on charged atoms whose speed exceeds the critical Landau velocity. The dependence of the fragment size distribution on the friction strength and on the initial nanodroplet size is investigated. By comparing with the available experimental data obtained for Ne+3 and Ne+4, a reasonable value for the friction coefficient, the only parameter of the model, is deduced. This value is then used to predict the effect of the helium environment on the dissociation dynamics of larger neon clusters, n=5–14. The results show stabilization of larger fragments than in the gas phase, but fragmentation is not completely caged. In addition, two types of dynamics are characterized for Ne+4: fast and explosive, therefore leaving no time for friction to cool down the process when dynamics starts on one of the highest electronic states, and slower, therefore leading to some stabilization by helium when it starts on one of the lowest electronic states.