Epidemiological, clinical and experimental evidence suggests a link between type 2 diabetes and Alzheimer's disease (AD). Insulin modulates metabolism of β-amyloid precursor protein (APP) in neurons, decreasing the intracellular accumulation of β-amyloid (Aβ) peptides, which are pivotal in AD pathogenesis. The present study investigates whether the widely prescribed insulin-sensitizing drug, metformin (Glucophage^R), affects APP metabolism and Aβ generation in various cell models. We demonstrate that metformin, at doses that lead to activation of the AMP-activated protein kinase (AMPK), significantly increases the generation of both intracellular and extracellular Aβ species. Furthermore, the effect of metformin on Aβ generation is mediated by transcriptional up-regulation of β-secretase (BACE1), which results in an elevated protein level and increased enzymatic activity. Unlike insulin, metformin exerts no effect on Aβ degradation. In addition, we found that glucose deprivation and various tyrphostins, known inhibitors of insulin-like growth factors/insulin receptor tyrosine kinases, do not modulate the effect of metformin on Aβ. Finally, inhibition of AMP-activated protein kinase (AMPK) by the pharmacological inhibitor Compound C largely suppresses metformin's effect on Aβ generation and BACE1 transcription, suggesting an AMPK-dependent mechanism. Although insulin and metformin display opposing effects on Aβ generation, in combined use, metformin enhances insulin's effect in reducing Aβ levels. Our findings suggest a potentially harmful consequence of this widely prescribed antidiabetic drug when used as a monotherapy in elderly diabetic patients.