Recent epidemiological studies show a reduced prevalence of Alzheimer's disease (AD) in patients treated with inhibitors of cholesterol biosynthesis. Moreover, the cholesterol-transport protein, apolipoprotein E4, and elevated cholesterol are important risk factors for AD. Additionally, in vitro and in vivo studies show that intracellular cholesterol levels can modulate the processing of amyloid precursor protein (APP) to beta-amyloid, the major constituent of senile plaques. Cholesterol plays a crucial role in maintaining lipid rafts in a functional state. Lipid rafts are cholesterol-enriched membrane microdomains implicated in signal transduction, protein trafficking, and proteolytic processing. Since APP, beta-amyloid, and the putative gamma-secretase, presenilin-1 (PS-1), have all been found in lipid rafts, we hypothesized that the recently identified beta-secretase, Asp2 (BACE1), might also be present in rafts. Here, we report that recombinant Asp2 expressed in three distinct cell lines is raft associated. Using both detergent and nondetergent methods, Asp2 protein and activity were found in a light membrane raft fraction that also contained other components of the amyloidogenic pathway. Immunoisolation of caveolin-containing vesicles indicated that Asp2 was present in a unique raft population distinct from caveolae. Finally, depletion of raft cholesterol abrogated association of Asp2 with the light membrane fraction. These observations are consistent with the raft localization of APP processing and suggest that the partitioning of Asp2 into lipid rafts may underlie the cholesterol sensitivity of beta-amyloid production.