Among the approaches towards disease modifying treatment of Alzheimer's disease blocking the initial step of the amyloid cascade, Abeta42 generation, has received most attention. Abeta42 generation requires two proteases, beta- and gamma-secretase, and inhibition of these enzymes is a key focus of AD drug development. Progress in this area has been slow, because these enzymes were not identified. Using an expression cloning strategy we have identified a novel membrane bound aspartic protease, BACE1, as beta-secretase. The enzyme has been characterized in detail. The x-ray crystal structure, which is critical for rational inhibitor design, has been solved and shown to be similar to that of other pepsin family members. Our recent knockout studies show that BACE1 is critical for Abeta generation, but the knockout mice show an otherwise normal phenotype, raising the possibility that therapeutic BACE1 inhibition could be accomplished without major mechanism based toxicity. However, target-mediated toxicity of beta-secretase inhibition cannot be ruled out, as long as the major substrates of this enzyme are unknown. While various peptidic beta-secretase inhibitors have been published, the key challenge now is the generation of more drug-like compounds that could be developed for therapeutic purposes. (C) 2002 Elsevier Science Inc. All rights reserved.