Amyloid-beta peptide (Abeta) aggregate in senile plaque is a key characteristic of Alzheimer's disease (AD). Here, we show that phosphorylation of amyloid precursor protein (APP) on threonine 668 (P-APP) may play a role in APP metabolism. In AD brains, P-APP accumulates in large vesicular structures in afflicted hippocampal pyramidal neurons that costain with antibodies against endosome markers and the beta-secretase, BACE1. Western blot analysis reveals increased levels of T668-phosphorylated APP COOH-terminal fragments in hippocampal lysates from many AD but not control subjects. Importantly, P-APP cofractionates with endosome markers and BACE1 in an iodixanol gradient and displays extensive colocalization with BACE1 in rat primary cortical neurons. Furthermore, APP COOH-terminal fragments generated by BACE1 are preferentially phosphorylated on T668 verses those produced by alpha-secretase. The production of Abeta is significantly reduced when phosphorylation of T668 is either abolished by mutation or inhibited by T668 kinase inhibitors. Together, these results suggest that T668 phosphorylation may facilitate the BACE1 cleavage of APP to increase Abeta generation.