β-secretase (or BACE1) is the key enzyme in the production of β-amyloid (Aβ), which accumulates in the senile plaques characteristic for Alzheimer's disease. Consequently, the lack of BACE1 prevents β-processing of the amyloid precursor protein and Aβ production, which made it a promising target for drug development. However, the loss of BACE1 is also detrimental, leading to myelination defects and altered neuronal activity, functions that have been associated with the cleavage of Neuregulin and a voltage-gated sodium channel subunit. Here we show that the Drosophila ortholog of BACE, dBACE, is required for glial survival. Cell-specific knockdown experiments reveal that this is a non-cell autonomous function, as a knockdown of dBACE in photoreceptor neurons leads to progressive degeneration of glia in their target zone, the lamina. Interestingly, this phenotype is suppressed by the loss of the fly amyloid precursor protein (APPL), whereas a secretion-deficient form of APPL enhances the degeneration. This shows that full-length APPL in neurons promotes the death of neighboring glial cells and that β-processing of APPL is needed to prevent glial death. These results therefore not only demonstrate a novel function for an APP protein in glia, but they also show this function specifically requires regulation by β-cleavage.