The formation of beta-amyloid in the brains of individuals with Alzheimer disease requires the proteolytic cleavage of a membrane-associated precursor protein. The proteases that may be involved in this process have not yet been identified. Cathepsins are normally intracellular proteolytic enzymes associated with lysosomes; however, when sections from Alzheimer brains were stained by antisera to cathepsin D and cathepsin B, high levels of immunoreactivity were also detected in senile plaques. Extracellular sites of cathepsin immunoreactivity were not seen in control brains from age-matched individuals without neurologic disease or from patients with Huntington disease or Parkinson disease. In situ enzyme histochemistry of cathepsin D and cathepsin B on sections of neocortex using synthetic peptides and protein substrates showed that senile plaques contained the highest levels of enzymatically active cathepsin. At the ultrastructural level, cathepsin immunoreactivity in senile plaques was localized principally to lysosomal dense bodies and lipofuscin granules, which were extracellular. Similar structures were abundant in degenerating neurons of Alzheimer neocortex, and cathepsin-laden neuronal perikarya in various stages of disintegration could be seen within some senile plaques. The high levels of enzymatically competent lysosomal proteases abnormally localized in senile plaques represent evidence for candidate enzymes that may mediate the proteolytic formation of amyloid. We propose that amyloid precursor protein within senile plaques is processed by lysosomal proteases principally derived from degenerating neurons. Escape of cathepsins from the stringently regulated intracellular milieu provides a basis for an abnormal sequence of proteolytic cleavages of accumulating amyloid precursor protein.