At the cellular level, Alzheimer's disease (AD) must be the result of neuronal dysfunction and degeneration leading to a reduction in synaptic density. Filamentous deposits of amyloid, which define the disease at the molecular level, occur within perikarya, axons, dendrites, and terminals of neurons as neurofibrillary tangles (NFT), in the extracellular neuropil as amyloid plaques (APC), and around blood vessels as amyloid congophilic angiopathy (ACA). These fibrillar amyloid protein aggregates are also found in the brain of all individuals with Down's syndrome after the age of 30 years. The amyloid deposits apparently occur in the terminal zones of neurons that develop NFT. It is suggested that amyloid deposition is of fundamental significance in AD and that a thorough understanding of amyloid formation will eventually lead to successful therapeutic intervention in AD. As elucidation of the reasons behind amyloid deposition must shed some light on the pathogenesis of AD, we review the current state of knowledge on the nature of the AD amyloid protein, its origin, and its formation. Although there is yet no agreement about the chemical nature of the amyloid protein of NFT, the major constituent of both APC and ACA has been shown to be a 4.5-kD amyloid protein originally termed "beta-protein" or "amyloid A4" which we now denote as "beta A4." Amyloid beta A4 protein is proteolytically derived from a transmembrane protein termed amyloid precursor protein (APP) which is encoded by a widely expressed gene on chromosome 21. Our present results are consistent with the possibility that amyloid formation requires membrane damage or APP molecules that are not or are incorrectly integrated into membranes. To allow the generation of the C-terminus of beta A4, one proteolytic cleavage step has to occur in the sequence that normally forms the transmembrane domain of the APP proteins. This cleavage is crucial for amyloid formation because we could show that the ability of synthetic beta A4 to form amyloid depositions is mainly based on hydrophobic parts of the sequence that have to interact with each other and build up large aggregates under physiologic conditions. Membrane association of APP is expected to interfere with this cleavage and the process of aggregation.