Senile plaques composed of A beta peptides are a histopathological hallmark of Alzheimer disease (AD). A role for A beta in the etiology of AD has been argued from analysis of mutations associated with a subset of early-onset familial AD (FAD). Expression of autosomal dominant mutations in the genes for the amyloid precursor protein (APP), presenilin 1 (PS1), and presenilin 2 (PS2) in affected patients, cultured cells, or transgenic mice leads to increased production of total A beta or increased production of A beta ending at residue 42 (A beta42). Since A beta42 is the more amyloidogenic and toxic species in vitro and is the major component of amyloid senile plaques in vivo, overproduction of this peptide may play a crucial role in the pathogenesis of AD. Thus, an understanding of the production of A beta within the cell in normal and pathological conditions is critical to understanding early events in AD. Studies in cell culture have established that processing of APP to form A beta can occur at multiple locations within the cell and leads to the production of 2 pools of A beta: a secreted pool composed predominantly of A beta40 and a nonsecreted, intracellular pool composed preferentially of more amyloidogenic A beta42. The purpose of this review is to provide a summary of our current understanding of APP processing in the generation of the secreted and intracellular pools of A beta and to propose a model linking the intracellular pool to the formation of extracellular plaques and neuronal pathology in AD.