Polarized cells such as neurons and endothelial cells appear to be involved in two invariant pathological features of Alzheimer's disease pathology, namely the formation of senile plaques and cerebral amyloid angiopathy. This implicates polarized sorting mechanisms in the production and accumulation of amyloid beta-peptide (Abeta). We have now studied polarized sorting of beta-secretase (BACE) in Madin-Darby canine kidney (MDCK) cells. The majority of BACE is sorted to the apical surface of MDCK cells where very little beta-amyloid precursor protein (betaAPP) is observed, because betaAPP undergoes basolateral sorting. Consistent with the usage of similar mechanisms for polarized sorting, BACE was also found to be targeted to axons of hippocampal neurons. The remaining basolaterally sorted BACE competes with the highly polarized basolateral alpha-secretase activity. Therefore, substantial amounts of BACE are targeted away from betaAPP to a non-amyloidogenic compartment, a cellular mechanism that limits Abeta generation. In addition, no alpha-secretase activity was observed on the apical side whereas gamma-secretase activity is observed on the basolateral and the apical side. Consistent with this finding, substantial amounts of Abeta can be produced apically upon missorting of betaAPP to the apical surface. These data demonstrate that Abeta production is limited in polarized cells by differential targeting of BACE and its substrate betaAPP. Moreover, our findings suggest that betaAPP may not be a major physiological substrate of BACE.