Epidemiology, in vitro, and in vivo studies strongly implicate a role for cholesterol in the pathogenesis of Alzheimer's disease (AD). We have examined the impact of aberrant intracellular cholesterol transport on the processing of the amyloid precursor protein (APP) in a mouse model of Niemann-Pick type C (NPC) disease. In the NPC mouse brain, cholesterol accumulates in late endosomes/lysosomes. This was associated with the accumulation of beta-C-terminal fragments (CTFs) of APP, but the level of beta-secretase and its activity were not affected. Alpha-secretase activity and secreted APPalpha generation were also not affected, suggesting CTFs increased because of decreased clearance. The level of presenilin-1 (PS-1) was unchanged, but gamma-secretase activity was greatly enhanced, which correlated with an increase in Abeta40 and Abeta42 levels. These events were associated with abnormal distribution of PS-1 in the endosomal system. Our results show that aberrant cholesterol trafficking is associated with the potentiation of APP processing components in vivo, leading to an overall increase in Abeta levels.