A role for beta-amyloid precursor protein (beta-APP) in the development of Alzheimer's disease has been indicated by genetics, and many conditions in which beta-APP is raised have been associated with an increased risk of Alzheimer's disease or an Alzheimer's-like pathology. Inflammatory events may also contribute to Alzheimer's disease. Here we investigate whether a secreted derivative of beta-APP (sAPP-alpha) can induce inflammatory reactions in microglia, which are brain cells of monocytic lineage. We found that treatment with sAPP-alpha increased markers of activation in microglia and enhanced their production of neurotoxins. The ability of sAPP-alpha to activate microglia was blocked by prior incubation of the protein with apolipoprotein E3 but not apolipoprotein E4, a variant associated with an increased risk for Alzheimer's. A product of amyloidogenic beta-APP processing (sAPP-beta) also activated microglia. Because sAPP-beta is deficient in the neuroprotective activity shown by sAPP-alpha, our results indicate that increased amyloidogenic processing could adversely affect the balance of sAPP activities that determine neuronal viability.