The pathogenic event common to all forms of Alzheimer's disease is the abnormal accumulation of the amyloid β-peptide (Aβ). Here we provide strong evidence that intracellular cholesterol compartmentation modulates the generation of Aβ. Using genetic, biochemical and metabolic approaches, we found that cholesteryl-ester levels are directly correlated with Aβ production. Acyl-coenzyme A:cholesterol acyltransferase (ACAT), the enzyme that catalyses the formation of cholesteryl esters, modulates the generation of Aβ through the tight control of the equilibrium between free cholesterol and cholesteryl esters. We also show that pharmacological inhibitors of ACAT, developed for the treatment of atherosclerosis, are potent modulators of Aβ generation, indicating their potential for use in the treatment of Alzheimer's disease.