A hallmark of Alzheimer disease (AD) is the accumulation of the amyloid-β (Aβ) peptide in the brain. Considerable evidence suggests that soluble Aβ oligomers are responsible for the synaptic dysfunction and cognitive deficit observed in AD. However, the mechanism by which these oligomers exert their neurotoxic effect remains unknown. Recently, it was reported that Aβ oligomers bind to the cellular prion protein with high affinity. Here, we show that N1, the main physiological cleavage fragment of the cellular prion protein, is necessary and sufficient for binding early oligomeric intermediates during Aβ polymerization into amyloid fibrils. The ability of N1 to bind Aβ oligomers is influenced by positively charged residues in two sites (positions 23-31 and 95-105) and is dependent on the length of the sequence between them. Importantly, we also show that N1 strongly suppresses Aβ oligomer toxicity in cultured murine hippocampal neurons, in a Caenorhabditis elegans-based assay, and in vivo in a mouse model of Aβ-induced memory dysfunction. These data suggest that N1, or small peptides derived from it, could be potent inhibitors of Aβ oligomer toxicity and represent an entirely new class of therapeutic agents for AD.