The amyloid precursor protein (APP) is processed in the secretory and endocytic pathways, where both the neuroprotective alpha-secretase-derived secreted APP (APPs alpha) and the Alzheimer's disease-associated beta-amyloid peptide are generated. All three members of the FE65 protein family bind the cytoplasmic domain of APP, which contains two sorting signals, YTS and YENPTY. We show here that binding of APP to the C-terminal phosphotyrosine interaction domain of hFE65L requires an intact YENPTY clathrin-coated pit internalization sequence. To study the effects of the hFE65L/APP interaction on APP trafficking and processing, we performed pulse/chase experiments and examined APP maturation and secretion in an H4 neuroglioma cell line inducible for expression of the hFE65L protein. Pulse/chase analysis of endogenous APP in these cells showed that the ratio of mature to total cellular APP increased after the induction of hFE65L. We also observed a three-fold increase in the amount of APPs alpha recovered from conditioned media of cells overexpressing hFE65L compared with uninduced controls. The effect of hFE65L on the levels of APPs alpha secreted is due neither to a simple increase in the steady-state levels of APP nor to activation of the protein kinase C-regulated APP secretion pathway. We conclude that the effect of hFE65L on APP processing is due to altered trafficking of APP as it transits through the secretory pathway.