The beta-amyloid protein (Abeta) is derived by proteolytic processing of the amyloid protein precursor (APP). Cleavage of APP by beta-secretase generates a C-terminal fragment (APP-CTFbeta), which is subsequently cleaved by gamma-secretase to produce Abeta. Our previous studies have shown that the proteasome can cleave the C-terminal cytoplasmic domain of APP. To identify proteasome cleavage sites in APP, two peptides homologous to the C-terminus of APP were incubated with recombinant 20S proteasome. Cleavage of the peptides was monitored by reversed phase high-performance liquid chromatography and mass spectrometry. Proteasome cleaved the APP C-terminal peptides at several sites, including a region around the sequence YENPTY that interacts with several APP-binding proteins. To examine the effect of this cleavage on Abeta production, APP-CTFbeta and mutant forms of APP-CTFbeta terminating on either side of the YENPTY sequence were expressed in CHO cells. Truncation of APP-CTFbeta on the N-terminal side of the YENPTY sequence at residue 677 significantly decreased the amount of Abeta produced, whereas truncation on the C-terminal side of residue 690 had little effect. The results suggest that proteasomal cleavage of the cytosolic domain of APP at the YENPTY sequence decreases gamma-secretase processing, and consequently inhibits Abeta production. Therefore, the proteasome-dependent trafficking pathway of APP may be a valid therapeutic target for altering Abeta production in the Alzheimer's disease brain.