The conversion of soluble, non-toxic amyloid beta-protein (Abeta) to aggregated, toxic Abeta could be the key step in the development of Alzheimer's disease. Liposomal studies have proposed that Abeta-(1-40) preferentially recognizes a cholesterol-dependent cluster of gangliosides and a conformationally altered form of Abeta promotes the aggregation of the protein. Cell experiments using fluorescein-labeled Abeta-(1-40) supported this model. Here, the interaction of native Abeta-(1-42) with unfixed rat pheochromocytoma PC12 cells was visualized using the amyloid-specific dye Congo red. Abeta-(1-42) preferentially bound to ganglioside and cholesterol-rich domains of cell membranes and formed amyloids in a time-dependent manner. These observations corroborate the model involving ganglioside-mediated accumulation of Abeta. The NGF-induced differentiation of PC12 cells into neuron-like cells caused a marked increase in both gangliosides and cholesterol, and thereby greatly potentiated the accumulation and cytotoxicity of Abeta-(1-42). NGF-differentiated cells exposed to Abeta-(1-42) had degenerated neurites, in which ganglioside and cholesterol-rich domains were localized, preceding cell death. A reduction in the amount of cholesterol by the cholesterol synthesis inhibitor compactin almost nullified the formation of amyloids by Abeta-(1-42). Our system using NGF-differentiated PC12 cells and Congo red is useful for screening inhibitors of the formation of amyloids by and cytotoxicity of Abeta.