Mutations in the gene encoding the amyloid protein precursor (APP) cause autosomal dominant Alzheimer's disease. Cleavage of APP by unidentified proteases, referred to as beta- and gamma-secretases, generates the amyloid beta-peptide, the main component of the amyloid plaques found in Alzheimer's disease patients. The disease-causing mutations flank the protease cleavage sites in APP and facilitate its cleavage. Here we identify a new membrane-bound aspartyl protease (Asp2) with beta-secretase activity. The Asp2 gene is expressed widely in brain and other tissues. Decreasing the expression of Asp2 in cells reduces amyloid beta-peptide production and blocks the accumulation of the carboxy-terminal APP fragment that is created by beta-secretase cleavage. Solubilized Asp2 protein cleaves a synthetic APP peptide substrate at the beta-secretase site, and the rate of cleavage is increased tenfold by a mutation associated with early-onset Alzheimer's disease in Sweden. Thus, Asp2 is a new protein target for drugs that are designed to block the production of amyloid beta-peptide peptide and the consequent formation of amyloid plaque in Alzheimer's disease.