Pathological lesions in the brains of patients with Alzheimer's disease (AD) are characterized by dense deposits of the protein beta-amyloid. The link between the deposition of beta-amyloid in senile plaques and AD-associated pathology is, at present, controversial since there have been conflicting reports on whether the 39-43 amino acid beta-amyloid sequence is toxic or trophic to neurons. In this report, we show that beta-amyloid peptide when presented as an insoluble substrate which mimics its conformation in vivo can induce cortical glial cells in vitro and in vivo to locally deposit chondroitin sulfate containing proteoglycan. In vitro the proteoglycan-containing matrix deposited by glia on beta-amyloid blocks the usual ability of the peptide to allow cortical neurons to adhere and grow. Chondroitin sulfate-containing proteoglycan was also found in senile plaques of human AD tissue. We suggest that an additional effect of beta-amyloid in the brain, which compounds the direct effects of beta-amyloid on neurons, is mediated by the stimulation of astroglia to become reactive. Once in the reactive state, glial cells deposit large amounts of growth-inhibitory molecules within the neuropil which could impair neuronal process survival and regeneration leading to neurite retraction and/or dystrophy around senile plaques in AD.