Type 2 diabetes mellitus (T2DM) is a risk factor for the development of late-onset Alzheimer's disease (AD). However, the mechanism underlying the development of late-onset AD is largely unknown. Here we show that levels of the endothelial-enriched protein caveolin-1 (Cav-1) are reduced in the brains of T2DM patients compared with healthy aging, and inversely correlated with levels of β-amyloid (Aβ). Depletion of Cav-1 is recapitulated in the brains of db/db (Lepr^db ) diabetic mice and corresponds with recognition memory deficits as well as the upregulation of amyloid precursor protein (APP), BACE-1, a trending increase in β-amyloid Aβ_42/40 ratio and hyperphosphorylated tau (p-tau) species. Importantly, we show that restoration of Cav-1 levels in the brains of male db/db mice using adenovirus overexpressing Cav-1 (AAV-Cav-1) rescues learning and memory deficits and reduces pathology (i.e., APP, BACE-1 and p-tau levels). Knocking down Cav-1 using shRNA in HEK cells expressing the familial AD-linked APPswe mutant variant upregulates APP, APP carboxyl terminal fragments, and Aβ levels. In turn, rescue of Cav-1 levels restores APP metabolism. Together, these results suggest that Cav-1 regulates APP metabolism, and that depletion of Cav-1 in T2DM promotes the amyloidogenic processing of APP and hyperphosphorylation of tau. This may suggest that depletion of Cav-1 in T2DM underlies, at least in part, the development of AD and imply that restoration of Cav-1 may be a therapeutic target for diabetic-associated sporadic AD.SIGNIFICANCE STATEMENT More than 95% of the Alzheimer's patients have the sporadic late-onset form (LOAD). The cause for late-onset Alzheimer's disease is unknown. Patients with Type 2 diabetes mellitus have considerably higher incidence of cognitive decline and AD compared with the general population, suggesting a common mechanism. Here we show that the expression of caveolin-1 (Cav-1) is reduced in the brain in Type 2 diabetes mellitus. In turn, reduced Cav-1 levels induce AD-associated neuropathology and learning and memory deficits. Restoration of Cav-1 levels rescues these deficits. This study unravels signals underlying LOAD and suggests that restoration of Cav-1 may be an effective therapeutic target.