The neurotoxic Abeta peptide is derived by proteolytic processing from the Alzheimer's amyloid precursor protein (APP), whose short cytoplasmic domain contains several phosphorylatable amino acids. The latter can be phosphorylated 'in vitro' and 'in vivo,' and in some cases phosphorylation appears to be associated with the disease condition. Using APP-GFP fusion proteins to monitor APP processing, the role of Tyr687 was addressed by mimicking its constitutive phosphorylation (Y687E) and dephosphorylation (Y687F). Contrasting effects on subcellular APP distribution were observed. Y687E-APP-GFP was targeted to the membrane but could not be detected in transferrin containing vesicular structures, and exhibited a concomitant and dramatic decrease in Abeta production. In contrast, Y687F-APP-GFP was endocytosed similarly to wild type APP, but was relatively favoured for beta-secretase cleavage. Overall, Tyr687 appears to be a critical residue determining APP targeting and processing via different pathways, including endocytosis and retrograde transport. Significantly, from a disease perspective, mimicking Tyr687 phosphorylation resulted in a hitherto undescribed inhibition of Abeta production. Our results provide novel insights into the role of direct APP phosphorylation on APP targeting, processing and Abeta production.