Lymphoblastoid cells derived from patients with early- and late-onset familial Alzheimer's disease express a Ca(2+)-dependent, 68-kDa protease which forms an SDS-stable and heat-labile complex with the beta-amyloid precursor protein. Utilizing this property, we prepared the protein by heat-dissociation of its immunoprecipitate with an antibody raised against the extracellular part of the beta-amyloid precursor protein. Disuccinimidyl suberate cross-linking analysis showed that in the presence of Ca2+ this protein binds to a synthetic oligopeptide corresponding to the first 12 amino acids of beta/A4-amyloid and its N-terminal flanks. Thin-layer chromatography of a reaction mixture of the 68-kDa protein and the oligopeptide demonstrated its proteolytic activity in the presence of Ca2+. Subsequent N-terminal amino acid sequencing of the cleaved fragment showed the cleavage site of the oligopeptide to be the Lys-2-Met-1-Asp beta A4-1 bonds. This protease also cleaves a natural substrate of 110-kDa beta-amyloid precursor protein, thereby generating the 16-kDa preamyloid peptide that accumulates abnormally in familial Alzheimer's disease lymphoblastoid cells. It does not, however, cleave the Gln beta A4-15-Lys16-Leu17 bond that is regarded to be the normal proteolytic site for the secretion of the beta-amyloid precursor protein. Analysis of the effects of protease inhibitors suggests that this 68-kDa protease is a Ca(2+)-dependent serine protease.