Abstract Cerebral deposition of β-amyloid protein is a pathological feature central to Alzheimer's disease. Production of β-amyloid by proteolytic processing of the β-amyloid precursor protein (βAPP) is a critical initial step in β-amyloidogenesis. We use an inhibitor of βAPP processing to block β-amyloid peptide formation. Application of the inhibitor to cultured cells results in an accumulation of proteolytic intermediates of βAPP, enabling a precursor-product relationship between βAPP carboxy-terminal fragments and β-amyloid peptides to be demonstrated directly. In the presence of inhibitor, these amyloidogenic carboxy-terminal fragments can be degraded to nonamyloidogenic products. The catabolism of βAPP carboxy-terminal intermediates and the formation of β-amyloid peptides are likely to involve an early endosomal compartment as the subcellular site of processing.