Severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2) utilizes its Spike (S) glycoprotein to bind to the angiotensin-converting enzyme 2 (ACE2) receptor for cellular entry. ACE2 is a critical negative regulator of the renin-angiotensin system and plays a protective role in preventing tissue injury. Expression of ACE2 has been shown to decrease upon infection by SARS-CoV. However, whether SARS-CoV-2 down-regulates ACE2 and the underlying mechanism and biological impact of this down-regulation have not been well defined. Here we show that the SARS-CoV-2 infection down-regulates ACE2 in vivo in an animal model, and in cultured cells in vitro, by inducing clathrin- and AP2-dependent endocytosis, leading to its degradation in the lysosome. SARS-CoV-2 S-treated cells and ACE2 knockdown cells exhibit similar alterations in downstream gene expression, with a pattern indicative of activated cytokine signaling that is associated with respiratory distress and inflammatory diseases often observed in COVID-19 patients. Finally, we have identified a soluble ACE2 fragment with a stronger binding to SARS-CoV-2 S that can efficiently block ACE2 down-regulation and viral infection. Thus, our study suggests that ACE2 down-regulation represents an important mechanism underlying SARS-CoV-2-associated pathology, and blocking this process could be a promising therapeutic strategy.