The cellular mechanisms which lead to the generation and pathological deposition of beta amyloid in Alzheimer's disease are unknown. In this report we describe the proteolytic processing of the amyloid precursor protein (APP) to an 11.5-kDa COOH-terminal derivative which contains the full-length beta amyloid sequence. This processing step normally occurs at low levels in parallel with APP maturation in the secretory pathway. Inhibition of oxidative energy metabolism by sodium azide or the mitochondrial uncoupler carbonyl cyanide m-chlorophenylhydrazone increased the proteolysis of APP to the 11.5-kDa derivative by about 80-fold with accumulation of this APP derivative in the Golgi complex. Agents which inhibit protein transport in the secretory pathway, including monensin and brefeldin A, also increased the production of the 11.5-kDa derivative. Inhibition of APP maturation demonstrated that the 11.5-kDa derivative could be produced by proteolysis of immature APP. These results demonstrate that APP processing to potentially amyloidogenic COOH-terminal derivatives occurs in either the endoplasmic reticulum or Golgi complex and can be modulated by the state of cellular energy metabolism. Deficits in oxidative energy metabolism have recently been found in the cerebral cortex of patients with Alzheimer's disease. These findings raise the possibility that energy-related metabolic stress may lead to altered metabolism of APP and contribute to amyloidosis in Alzheimer's disease.