A hallmark of all forms of Alzheimer's disease (AD) is an abnormal accumulation of the beta-amyloid protein (Abeta) in specific brain regions. Both the generation and clearance of Abeta are regulated by cholesterol. Elevated cholesterol levels increase Abeta in cellular and most animals models of AD, and drugs that inhibit cholesterol synthesis lower Abeta in these models. Recent studies show that not only the total amount, but also the distribution of cholesterol within neurons, impacts Abeta biogenesis. The identification of a variant of the apolipoprotein E (APOE) gene as a major genetic risk factor for AD is also consistent with a role for cholesterol in the pathogenesis of AD. Clinical trials have recently been initiated to test whether lowering plasma and/or neuronal cholesterol levels is a viable strategy for treating and preventing AD. In this review, we describe recent findings concerning the molecular mechanisms underlying the cholesterol-AD connection.