To investigate the potential contribution of the lysosomal compartment in the processing of amyloid precursor protein (APP) to amyloid beta-peptides (A beta s), we stably overexpressed a series of lysosomal proteases (the cysteine proteases, cathepsins B, L and S, and the aspartic protease, cathepsin D) in a human kidney epithelial cell line (293) transfected to express high levels of beta APP. Preliminary experiments indicated that 293 cells endogenously synthesize cathepsins B, L and D, but not cathepsin S. A beta secretion was assessed by immunoprecipitation and ELISA and found to be increased approximately 2-fold following cathepsin S expression, but to be unchanged (cathepsins B, L) or decreased (cathepsin D) in the other double transfectants. E-64d, an inhibitor of lysosomal cysteine proteases, significantly reduced A beta secretion by the cathepsin S transfectants, but had no effect on cells expressing the other proteases. Radiosequencing of A beta secreted by cathepsin S-expressing cells revealed that a previously unreported variant beginning at Met -1 (relative to the most common A beta N-terminus, Asp -1) accounted for most of the increase in A beta secretion. Immunostaining of human brain sections revealed cathepsin S in cortical neurons and glia in samples of brain from patients with Alzheimer's disease. These results provide evidence in living cells for a pathway in which cathepsin S generates A beta from amyloidogenic fragments of beta APP in the endosomal/lysosomal compartment. This pathway appears to be inducible, distinct from a constitutive pathway used by 293 and other cells to generate A beta, and may be relevant to the pathogenesis of Alzheimer's disease.