Amyloid-β peptide, which accumulates in senile plaques in Alzheimer's disease, is derived from the amyloid precursor protein (APP) by proteolytic processing. β-secretase (Asp2), which cleaves APP at the N-terminus of amyloid-β, has recently been identified to be the protease BACE. In the present study, we examined the subcellular localization of interactions between APP and BACE by using both double immunofluorescence and a fluorescence resonance energy transfer (FRET) approach. Cell surface APP and BACE, studied by using antibodies directed against their ectodomains in living H4 neuroglioma cells co-transfected with APP and BACE, showed exquisite co-localization and demonstrated a very close interaction by FRET analysis. The majority of cell surface APP and BACE were internalized after 15 minutes,but they remained strongly co-localized together in the early endosomal compartment, where FRET analysis demonstrated a continued close interaction. By contrast, at later timepoints, almost no co-localization or FRET was observed in lysosomal compartments. To determine whether the APP-BACE interaction on cell surface and endosomes contributed to amyloid-βsynthesis, we labeled cell surface APP and demonstrated detectable levels of labeled amyloid-β within 30 minutes. APP-Swedish mutant protein enhanced amyloid-β synthesis from cell surface APP, consistent with the observation that it is a better BACE substrate than wild-type APP. Taken together, these data confirm a close APP-BACE interaction in early endosomes,and highlight the cell surface as an additional potential site of APP-BACE interaction.