γ-Secretase catalyzes the cleavage of the intramembrane region of the Alzheimer amyloid precursor protein (APP), generating p3, amyloid-β peptide (Aβ), and the APP intracellular domain (AICD). Although a γ-secretase inhibitor has been shown to cause an accumulation of the APP C-terminal fragments (CTFs) α and β and to decrease levels of p3 or Aβ and AICD, we found that treatment with a lysosomotropic weak base, such as chloroquine or ammonium chloride, caused simultaneous accumulation of both CTFs and AICD, suggesting that lysosomal proteases are also involved in processing of APP. This observation was reinforced by the results that cysteine protease inhibitor E-64d and cathepsin B specific inhibitor CA-074Me caused the accumulation of both CTFs and AICD with no change in known secretase activities. γ-Secretase preferentially cleaved phosphorylated CTFs to produce Aβ, but cathepsin B degraded CTFs regardless of phosphorylation. Our results suggest that cathepsin B plays novel roles in the metabolism of APP and that an inhibition of APP phosphorylation is an attractive therapeutic target for Alzheimer's disease.