Epidemiological, clinical and experimental evidence suggests a link between type 2 diabetes and Alzheimer's disease (AD). Insulin modulates metabolism of beta-amyloid precursor protein (APP) in neurons, decreasing the intracellular accumulation of beta-amyloid (Abeta) peptides, which are pivotal in AD pathogenesis. The present study investigates whether the widely prescribed insulin-sensitizing drug, metformin (Glucophage(R)), affects APP metabolism and Abeta generation in various cell models. We demonstrate that metformin, at doses that lead to activation of the AMP-activated protein kinase (AMPK), significantly increases the generation of both intracellular and extracellular Abeta species. Furthermore, the effect of metformin on Abeta generation is mediated by transcriptional up-regulation of beta-secretase (BACE1), which results in an elevated protein level and increased enzymatic activity. Unlike insulin, metformin exerts no effect on Abeta degradation. In addition, we found that glucose deprivation and various tyrphostins, known inhibitors of insulin-like growth factors/insulin receptor tyrosine kinases, do not modulate the effect of metformin on Abeta. Finally, inhibition of AMP-activated protein kinase (AMPK) by the pharmacological inhibitor Compound C largely suppresses metformin's effect on Abeta generation and BACE1 transcription, suggesting an AMPK-dependent mechanism. Although insulin and metformin display opposing effects on Abeta generation, in combined use, metformin enhances insulin's effect in reducing Abeta levels. Our findings suggest a potentially harmful consequence of this widely prescribed antidiabetic drug when used as a monotherapy in elderly diabetic patients.