Amyloid beta peptide (Abeta) is a short peptide that is the major constituent of the amyloid plaques and cerebrovascular amyloid deposits found in Alzheimer's disease. The lack of availability of a cell-free system in which to study Abeta formation has limited our understanding of the molecular mechanisms involved in its production. We report here the reconstitution of such a cell-free system. The reconstituted Abeta formation was temperature-dependent and required ATP. Preincubation with purified protein kinase C (PKC) induced a pronounced inhibition of Abeta formation, similar to that observed in intact cells upon stimulation of PKC. The calmodulin antagonists W-7 and trifluoperazine inhibited Abeta formation and enhanced the action of PKC in both the cell-free system and intact cells. A role for the calcium/calmodulin-activated protein phosphatase calcineurin in the regulation of Abeta formation was demonstrated using a specific peptide inhibitor of calcineurin in vitro as well as cyclosporin A, a cell-permeant inhibitor of calcineurin, in intact cells. Our results suggest that a single substrate might mediate opposing actions of PKC and calcineurin in the regulation of Abeta formation.