Amyloid beta-peptide (Abeta) has a central role in the pathogenesis of Alzheimer's disease (AD). Cellular cholesterol homeostasis regulates endoproteolytic generation of Abeta from the amyloid precursor protein (APP). Previous studies have identified acyl-coenzyme A: cholesterol acyltransferase (ACAT), an enzyme that regulates subcellular cholesterol distribution, as a potential therapeutic target for AD. Inhibition of ACAT activity decreases Abeta generation in cell- and animal-based models of AD through an unknown mechanism. Here we show that ACAT inhibition retains a fraction of APP molecules in the early secretory pathway, limiting the availability of APP for secretase-mediated proteolytic processing. ACAT inhibitors delayed the trafficking of immature APP molecules from the endoplasmic reticulum (ER) as shown by metabolic labeling and live-cell imaging. This resulted in partial ER retention of APP and enhanced ER-associated degradation of APP by the proteasome, without activation of the unfolded protein response pathway. The ratio of mature APP to immature APP was reduced in brains of mice treated with ACAT inhibitors, and strongly correlated with reduced brain APP-C99 and cerebrospinal fluid Abeta levels in individual animals. Our results identify a novel ACAT-dependent mechanism that regulates secretory trafficking of APP, likely contributing to decreased Abeta generation in vivo.