Generation of amyloid-β (Aβ) from the amyloid precursor protein (APP) requires proteolytic cleavage by two proteases, β- and γ-secretase. Several lines of evidence suggest a role for cholesterol on secretase activities, although the responsible cellular mechanisms remain unclear. Here we show that alterations in cholesterol transport from late endocytic organelles to the endoplasmic reticulum have important consequences for both APP processing and the localization of γ-secretase-associated presenilins (PS). Exposure of neuronal cells to cholesterol transport-inhibiting agents resulted in a marked decrease in β-cleavage of full-length APP. In contrast, γ-secretase activity on APP C-terminal fragments was enhanced, increasing the production of both Aβ40 and Aβ42. Remarkably, retention of cholesterol in endosomal/lysosomal compartments induced PS1 and PS2 to accumulate in Rab7-positive vesicular organelles implicated in cholesterol sorting. Accumulation of PS in vesicular compartments was prominent in both Chinese hamster ovary cells deficient in Niemann–Pick C1 protein as well as in neuronal cells exposed to the cholesterol transport-inhibiting agent U18666A. Because Aβ42 also localized to PS1-containing vesicular compartments, organelles involved in cholesterol transport might represent an important site for γ-secretase activity. Our results suggest that the subcellular distribution of cholesterol may be an important factor in how cholesterol alters Aβ production and the risk of Alzheimer's disease.