Proteolytic processing of amyloid precursor protein (APP) generates amyloid-beta peptide and has been implicated in the pathogenesis of Alzheimer's disease. However, the normal function of APP, whether this function is related to the proteolytic processing of APP, and where this processing takes place in neurons in vivo remain unknown. We have previously shown that the axonal transport of APP in neurons is mediated by the direct binding of APP to the kinesin light chain subunit of kinesin-I, a microtubule motor protein. Here we identify an axonal membrane compartment that contains APP, beta-secretase and presenilin-1. The fast anterograde axonal transport of this compartment is mediated by APP and kinesin-I. Proteolytic processing of APP can occur in the compartment in vitro and in vivo in axons. This proteolysis generates amyloid-beta and a carboxy-terminal fragment of APP, and liberates kinesin-I from the membrane. These results suggest that APP functions as a kinesin-I membrane receptor, mediating the axonal transport of beta-secretase and presenilin-1, and that processing of APP to amyloid-beta by secretases can occur in an axonal membrane compartment transported by kinesin-I.