Sequential proteolysis of the amyloid precursor protein (APP) by beta- and gamma-secretase activities yields the amyloid beta peptide that is widely deposited in the brains of individuals with Alzheimer's disease. The membrane-anchored aspartyl protease beta-site APP-cleaving enzyme (BACE) exhibits all of the characteristics of a beta-secretase and has been shown to cleave APP at its beta-site in vitro and in vivo. We found that BACE undergoes cleavage on a surface-exposed alpha-helix between amino acid residues Leu-228 and Ala-229, generating stable N- and C-terminal fragments that remain covalently associated via a disulfide bond. The efficiency of BACE endoproteolysis was observed to depend heavily on cell and tissue type. In contrast to brain where holoprotein was predominant, BACE was found primarily as endoproteolyzed fragments in pancreas, liver, and muscle. In addition, we observed a marked up-regulation of BACE endoproteolysis in C2 myoblasts upon differentiation into multinucleated myotubes, a well established model system of muscle tissue specification. As in liver, BACE exists as endoproteolyzed fragments in the hepatic cell line, HepG2. We found that HepG2 cells are capable of generating amyloid beta peptide, suggesting that endoproteolyzed BACE retains measurable beta-secretase activity. We also found that BACE endoproteolysis occurs only after export from the endoplasmic reticulum, is enhanced in the trans-Golgi network, and is sensitive to inhibitors of vesicular acidification. The membrane-bound proteases tumor necrosis factor alpha-converting enzyme and furin were not found to be responsible for this cleavage nor was BACE observed to mediate its own endoproteolysis by an autocatalytic mechanism. Thus, we characterize a specific processing event that may serve to regulate the enzymatic activity of BACE on a post-translational level.