Alzheimer beta-amyloid protein precursor (beta APP) is expressed endogenously and abundantly by human neuroglioma (H4) cells. Its secretory processing has been shown to involve discrete proteolysis within the beta A4 region, thus preventing beta-amyloid formation, by an enzyme which has been referred to as 'beta APP secretase'. This cleavage results in secretion of a soluble N-terminal 135 kDa protein and retention of an integral membrane C-terminal fragment within the cell. The membrane-associated C-terminal fragment is sorted to lysosomes where it undergoes limited degradation. We show here that most newly synthesized beta APP is degraded via a non-lysosomal pathway before maturation in H4 cells, and most mature beta APP is processed predominantly by the so-called secretase. The rapid kinetics of appearance/disappearance of a cleaved 135 kDa protein within a microsomal fraction and the slow accumulation of this form in the extracellular medium indicated that secretase cleaves beta APP in an intracellular compartment. Low-temperature block (20 degrees C) was used to demonstrate that beta APP is cleaved within a late Golgi compartment after sulphation which occurs in the trans-Golgi network (TGN). This is consistent with (1) the immunolocalization of most of the beta APP within a Golgi compartment that reacts with wheat germ agglutinin, (2) the fact that less than 1.5% of the total mature full-length beta APP is present at the plasma membrane and (3) subcellular fractionation studies which showed that the mature full-length and intracellular cleaved beta APPs co-sediment with a membrane fraction that is slightly more dense than the plasma membrane. This study provides evidence that most of the beta APP secretase in H4 cells is intracellular, and confirms that the resulting C-terminal fragment is delivered to lysosomes immediately after cleavage. These results are discussed with regard to the possibility that mature full-length beta APP escapes secretase cleavage and is delivered directly from the TGN to the lysosome without passing through the plasma membrane. Either pathway will result in the generation of amyloidogenic fragments.