Amyloid beta-protein (A beta) is the main constituent of amyloid fibrils found in senile plaques and cerebral vessels in Alzheimer's disease (AD) and is derived by proteolysis from the beta-amyloid precursor protein (APP), We have analyzed the amyloidogenic processing of APP using chimeric proteins stably transfected in Chinese hamster ovary cells. The extracellular and transmembrane domains of APP were fused to the cytoplasmic region derived from the CD3 gamma chain of the T cell antigen receptor (CD3 gamma), CD3 gamma contains an endoplasmic reticulum (ER) retention motif (RKK), in the absence of which the protein is targeted to lysosomes without going through the cell surface (Letourneur, F., and Klausner, R.D. (1992) Cell 69, 1143-1157). We used the wild-type sequence of CD3 gamma to create an APP chimera predicted to remain in the ER (gamma APP(ER)). Deletion of the RKK motif at the C terminus directed the protein directly to the lysosomes (gamma APP(LYS)). A third chimera was created by removing both lysosomal targeting signals in addition to RKK (gamma APP(Delta Delta)), This last construct does not contain known targeting signals and consequently accumulates at the cell surface. We show by immunofluorescence and by biochemical methods that all three APP chimeras localize to the predicted compartments within the cell, thus providing a useful model to study the processing of APP. We found that A beta(1-40) is generated in the early secretory and endocytic pathways, whereas A beta(1-42) is made mainly in the secretory pathway, More importantly, we provide evidence that, unlike in neuronal models, both ER/intermediate compartment- and endocytic-derived A beta forms can enter the secretable pool. Finally, we directly demonstrate that lysosomal processing is not involved in the generation or secretion of either A beta(1-40) or A beta(1-42).