Autophagy, a major degradative pathway for proteins and organelles, is essential for survival of mature neurons. Extensive autophagic-lysosomal pathology in Alzheimer's disease brain contributes to Alzheimer's disease pathogenesis, although the underlying mechanisms are not well understood. Here, we identified and characterized marked intraneuronal amyloid-β peptide/amyloid and lysosomal system pathology in the Alzheimer's disease mouse model TgCRND8 similar to that previously described in Alzheimer's disease brains. We further establish that the basis for these pathologies involves defective proteolytic clearance of neuronal autophagic substrates including amyloid-β peptide. To establish the pathogenic significance of these abnormalities, we enhanced lysosomal cathepsin activities and rates of autophagic protein turnover in TgCRND8 mice by genetically deleting cystatin B, an endogenous inhibitor of lysosomal cysteine proteases. Cystatin B deletion rescued autophagic-lysosomal pathology, reduced abnormal accumulations of amyloid-β peptide, ubiquitinated proteins and other autophagic substrates within autolysosomes/lysosomes and reduced intraneuronal amyloid-β peptide. The amelioration of lysosomal function in TgCRND8 markedly decreased extracellular amyloid deposition and total brain amyloid-β peptide 40 and 42 levels, and prevented the development of deficits of learning and memory in fear conditioning and olfactory habituation tests. Our findings support the pathogenic significance of autophagic-lysosomal dysfunction in Alzheimer's disease and indicate the potential value of restoring normal autophagy as an innovative therapeutic strategy for Alzheimer's disease.