Mutations within the amyloid-beta (Abeta) domain of the amyloid precursor protein (APP) typically generate hemorrhagic strokes and vascular amyloid angiopathy. In contrast, the Arctic mutation (APP E693G) results in Alzheimer's disease. Little is known about the pathologic mechanisms that result from the Arctic mutation, although increased formation of Abeta protofibrils in vitro and intraneuronal Abeta aggregates in vivo suggest that early steps in the amyloidogenic pathway are facilitated. Here we show that the Arctic mutation favors proamyloidogenic APP processing by increased beta-secretase cleavage, as demonstrated by altered levels of N- and C-terminal APP fragments. Although the Arctic mutation is located close to the alpha-secretase site, APP harboring the Arctic mutation is not an inferior substrate to a disintegrin and metalloprotease-10, a major alpha-secretase. Instead, the localization of Arctic APP is altered, with reduced levels at the cell surface making Arctic APP less available for alpha-secretase cleavage. As a result, the extent and subcellular location of Abeta formation is changed, as revealed by increased Abeta levels, especially at intracellular locations. Our findings suggest that the unique clinical symptomatology and neuropathology associated with the Arctic mutation, but not with other intra-Abeta mutations, could relate to altered APP processing with increased steady-state levels of Arctic Abeta, particularly at intracellular locations.