Incubation of cultured hippocampal slices with an inhibitor [N-CBZ-L-phenylalanyl-L-alanine-diazomethyl ketone (ZPAD)] of cathepsins B and L resulted in the degradation of high molecular weight isoforms of tau protein and the production of a 29-kDa tau fragment (tau 29). A tau antibody that is sensitive to the phosphorylated state of its epitopes did not recognize tau proteins or the tau 29 fragment in slices that had been treated with a protein phosphatase inhibitor. This strongly suggests that the tau fragment was located in an extralysosomal compartment accessible to kinases and phosphatases. tau 29 exhibited a significant capacity for binding to microtubules and thus has the potential for interfering with normal tau-tubulin interactions. Three lines of evidence indicated that ZPAD-induced tau proteolysis was mediated by cathepsin D: (a) slices treated with the inhibitor had markedly elevated levels of cathepsin D in both lysosomal and extralysosomal compartments; (b) co-incubation of cathepsin D and tau at neutral pH resulted in a loss of intact tau proteins and production of a 28-kDa fragment; and (c) the lysosomotropic drug chloroquine blocked ZPAD-induced increases in mature cathepsin D, and this was accompanied by a suppression of ZPAD-induced tau proteolysis. Changes in lysosomal hydrolases and cytoskeletal perturbations occur during brain aging. The present results suggest that the enzymatic and structural effects are related and, more specifically, are linked by alterations in the concentration and localization of cathepsin D. The tau fragments with microtubule binding capacity generated by cathepsin D could also be a source for the small polypeptides found in association with age-related pathological features.