An economical new process has been developed for the synthesis of donepezil hydrochloride (1) an anti-Alzheimer's drug. The process involves Darzen reaction of pyridine-4-carboxaldehyde and 2-bromo-5,6-dimethoxy indanone affording epoxide 5,6-dimethoxy-3-(pyridine-4-yl)spiro[indene-2,2'-oxiran]-1(3H)-one (4) as a key intermediate. The one-pot deoxygenation of 4 and hydrogenation of the aryl moiety in high yield improved the overall yield of the process.