The Alzheimer amyloid precursor protein (APP) is cleaved by several proteases, the most studied, but still unidentified ones, are those involved in the release of a fragment of APP, the amyloidogenic beta-protein A beta. Proteolysis by gamma-secretase is the last processing step resulting in release of A beta. Cleavage occurs after residue 40 of A beta [A beta(1-40)], occasionally after residue 42 [A beta(1-42)]. Even slightly increased amounts of this A beta(1-42) might be sufficient to cause Alzheimer's disease (AD) (reviewed in ref. 1, 2). It is thus generally believed that inhibition of this enzyme could aid in prevention of AD. Unexpectedly we have identified in neurons the endoplasmic reticulum (ER) as the site for generation of A beta(1-42) and the trans-Golgi network (TGN) as the site for A beta(1-40) generation. It is interesting that intracellular generation of A beta seemed to be unique to neurons, because we found that nonneuronal cells produced significant amounts of A beta(1-40) and A beta(1-42) only at the cell surface. The specific production of the critical A beta isoform in the ER of neurons links this compartment with the generation of A beta and explains why primarily ER localized (mutant) proteins such as the presenilins could induce AD. We suggest that the earliest event taking place in AD might be the generation of A beta(1-42) in the ER.