VPS35, a major component of the retromer complex, is important for endosome-to-Golgi retrieval of membrane proteins. Although implicated in Alzheimer's disease (AD), how VPS35 regulates AD-associated pathology is unknown. In this paper, we show that hemizygous deletion of Vps35 in the Tg2576 mouse model of AD led to earlier-onset AD-like phenotypes, including cognitive memory deficits, defective long-term potentiation, and impaired postsynaptic glutamatergic neurotransmission in young adult age. These deficits correlated well with an increase of β-amyloid peptide (Aβ) level in the mutant hippocampus. We further demonstrate that VPS35 is predominantly expressed in pyramidal neurons of young adult hippocampus and interacts with BACE1, a protease responsible for Aβ production. Loss of VPS35 function in the mouse hippocampus increased BACE1 activity. Suppression of VPS35 expression in culture decreased BACE1 trans-Golgi localization but enriched it in endosomes. These results demonstrate an essential role for VPS35 in suppression of AD neuropathology and in inhibition of BACE1 activation and Aβ production by promoting BACE1 endosome-to-Golgi retrieval.