The amyloid-beta (Abeta) peptide, widely known as the causative molecule of Alzheimer disease (AD), is generated by the sequential cleavage of amyloid precursor protein (APP) by the aspartyl proteases BACE1/beta-secretase and presenilin/gamma-secretase. Inhibition of BACE1, therefore, is a promising strategy for preventing the progression of AD. However, beta-secretase inhibitors (BSIs) exhibit unexpectedly low potency in cells expressing "Swedish mutant" APP (APPswe) and in the transgenic mouse Tg2576, an AD model overexpressing APPswe. The Swedish mutation dramatically accelerates beta-cleavage of APP and hence the generation of Abeta; this acceleration has been assumed to underlie the poor inhibitory activity of BSI against APPswe processing. Here, we studied the mechanism by which the Swedish mutation causes this BSI potency decrease. Surprisingly, decreased BSI potency was not observed in an in vitro assay using purified BACE1 and substrates, indicating that the accelerated beta-cleavage resulting from the Swedish mutation is not its underlying cause. By focusing on differences between the cell-based and in vitro assays, we have demonstrated here that the potency decrease is caused by the aberrant subcellular localization of APPswe processing and not by accelerated beta-cleavage or the accumulation of the C-terminal fragment of beta-cleaved APP. Because most patients with sporadic AD express wild type APP, our findings suggest that the wild type mouse is superior to the Tg2576 mouse as a model for determining the effective dose of BSI for AD patients. This work provides novel insights into the potency decrease of BSI and valuable suggestions for its development as a disease-modifying agent.