Phospholipase D3 (PLD3) is a protein of unclear function that structurally resembles other members of the phospholipase D superfamily. A coding variant in this gene confers increased risk for the development of Alzheimer's disease (AD), although the magnitude of this effect has been controversial. Because of the potential significance of this obscure protein, we undertook a study to observe its distribution in normal human brain and AD-affected brain, determine whether PLD3 is relevant to memory and cognition in sporadic AD, and to evaluate its molecular function. In human neuropathological samples, PLD3 was primarily found within neurons and colocalized with lysosome markers (LAMP2, progranulin, and cathepsins D and B). This colocalization was also present in AD brain with prominent enrichment on lysosomal accumulations within dystrophic neurites surrounding β-amyloid plaques. This pattern of protein distribution was conserved in mouse brain in wild type and the 5xFAD mouse model of cerebral β-amyloidosis. We discovered PLD3 has phospholipase D activity in lysosomes. A coding variant in PLD3 reported to confer AD risk significantly reduced enzymatic activity compared to wild-type PLD3. PLD3 mRNA levels in the human pre-frontal cortex inversely correlated with β-amyloid pathology severity and rate of cognitive decline in 531 participants enrolled in the Religious Orders Study and Rush Memory and Aging Project. PLD3 levels across genetically diverse BXD mouse strains and strains crossed with 5xFAD mice correlated strongly with learning and memory performance in a fear conditioning task. In summary, this study identified a new functional mammalian phospholipase D isoform which is lysosomal and closely associated with both β-amyloid pathology and cognition.