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In Alzheimers disease (AD) amyloid-beta (Abeta) peptides derived from the amyloid precursor protein (APP) accumulate in the brain. Cleavage of APP by the beta-secretase BACE1 is the rate-limiting step in the production of Abeta. We have reported previously that the cellular prion protein (PrPC) inhibited the action of BACE1 towards wild type human APP (APPWT) in cellular models and that the levels of endogenous murine Abeta were significantly increased in PrPC null mice brain. Here we have investigated the molecular and cellular mechanisms underlying this observation. PrPC interacted directly with the pro-domain of the immature Golgi-localised form of BACE1. This interaction decreased BACE1 at the cell surface and in endosomes, where it preferentially cleaves APPWT, but increased it in the Golgi, where it preferentially cleaves APP with the Swedish mutation (APPSwe). In transgenic mice expressing human APP with the Swedish and Indiana familial AD mutations (APPSwe,Ind), PrPC deletion had no influence on APP proteolytic processing, Abeta plaque deposition, levels of soluble Abeta or Abeta oligomers. In cells, although PrPC inhibited the action of BACE1 on APPWT, it did not inhibit BACE1 activity towards APPSwe. The differential subcellular location of the BACE1 cleavage of APPSwe relative to APPWT provides an explanation for the failure of PrPC deletion to affect Abeta accumulation in APPSwe,Ind mice. Thus, while PrPC exerts no control on cleavage of APPSwe by BACE1, it has a profound influence on the cleavage of APPWT suggesting that PrPC may be a key protective player against sporadic AD.