Proteolytic cleavage of amyloid precursor protein by β-secretase (BACE1) is a key step in generating the N-terminal of β-amyloid (Aβ), which further forms into amyloid plaques that are considered as the hallmark of Alzheimer's disease. Inhibitors of BACE1 can reduce the levels of Aβ and thus have a therapeutic potential for treating the disease. We report here the identification of a series of small molecules bearing an indole acylguanidine core structure as potent BACE1 inhibitors. The initial weak fragment was discovered by virtual screening, and followed with a hit-to-lead optimization. With the aid of co-crystal structures of two discovered inhibitors (compounds 19 and 25) with BACE1, we explored the SAR around the indole and aryl groups, and obtained several BACE1 inhibitors about 1,000-fold more potent than the initial fragment hit. Accompanying the lead optimization, a previously under-explored sub-site opposite the flap loop was redefined as a potential binding site for later BACE1 inhibitor design.