An additional copy of the beta-amyloid precursor protein (APP) gene causes early-onset Alzheimer's disease (AD) in trisomy 21 (DS). Endosome dysfunction develops very early in DS and AD and has been implicated in the mechanism of neurodegeneration. Here, we show that morphological and functional endocytic abnormalities in fibroblasts from individuals with DS are reversed by lowering the expression of APP or beta-APP-cleaving enzyme 1 (BACE-1) using short hairpin RNA constructs. By contrast, endosomal pathology can be induced in normal disomic (2N) fibroblasts by overexpressing APP or the C-terminal APP fragment generated by BACE-1 (betaCTF), all of which elevate the levels of betaCTFs. Expression of a mutant form of APP that cannot undergo beta-cleavage had no effect on endosomes. Pharmacological inhibition of APP gamma-secretase, which markedly reduced Abeta production but raised betaCTF levels, also induced AD-like endosome dysfunction in 2N fibroblasts and worsened this pathology in DS fibroblasts. These findings strongly implicate APP and the betaCTF of APP, and exclude Abeta and the alphaCTF, as the cause of endocytic pathway dysfunction in DS and AD, underscoring the potential multifaceted value of BACE-1 inhibition in AD therapeutics.