Progressive cerebral deposition of the amyloid (A beta) beta-protein is an early and invariant feature of Alzheimer's disease. A beta is derived by proteolysis from the membrane-spanning beta-amyloid precursor protein (beta APP). beta APP is processed into various secreted products, including soluble beta APP (APPs), the 4-kD A beta peptide, and a related 3-kD peptide (p3). We analyzed the mechanisms regulating the polarized basolateral sorting of beta APP and its proteolytic derivatives in MDCK cells. Deletion of the last 32 amino acids (residues 664-695) of the beta APP cytoplasmic tail had no influence on either the constitutive approximately 90% level of basolateral sorting of surface beta APP, or the strong basolateral secretion of APPs, A beta, and p3. However, deleting the last 42 amino acids (residues 654-695) or changing tyrosine 653 to alanine altered the distribution of cell surface beta APP so that approximately 40-50% of the molecules were inserted apically. In parallel, A beta was now secreted from both surfaces. Surprisingly, this change in surface beta APP had no influence on the basolateral secretion of APPs and p3. This result suggests that most beta APP molecules which give rise to APPs in MDCK cells are cleaved intracellularly before reaching the surface. Consistent with this conclusion, we readily detected intracellular APPs in carbonate extracts of isolated membrane vesicles. Moreover, ammonium chloride treatment resulted in the equal secretion of APPs into both compartments, as occurs with other non-membranous, basolaterally secreted proteins, but it did not influence the polarity of cell surface beta APP. These results demonstrate that in epithelial cells two independent mechanisms mediate the polarized trafficking of beta APP holoprotein and its major secreted derivative (APPs) and that A beta peptides are derived in part from beta APP holoprotein targeted to the cell surface by a signal that includes tyrosine 653.