In familial Alzheimer’s disease (AD), many pathogenic mutations have been reported for amyloid-β precursor protein (APP) and presenilin 1 and 2 genes. However, only one protective mutation has been reported for the APP gene, in Icelanders. Although APP metabolism is closely related to intracellular trafficking of APP and APP-cleaving enzymes, the mechanism of the causative gene mutations remains largely unclear. The Icelandic A673T mutation of the APP gene protects against AD, whereas the A673V mutation at the same amino acid position is pathogenic. APP A673T markedly decreases generation of CTFβ/C99, which is produced in the amyloidogenic cleavage of APP by β-site APP-cleaving enzyme 1 (BACE1). This CTFβ/C99 is further cleaved by γ-secretase to generate neurotoxic amyloid-β 1-40 (Aβ^1-40) and Aβ^1-42 peptides. Because BACE1 activity is increased in intracellular acidic compartments, it has been suggested that APP A673T may escape from this BACE1-dependent amyloidogenic pathway. However, we propose a novel hypothesis that BACE1 preferentially cleaves APP A673T at the β′- rather than the β-site, generating an amino-terminally truncated Aβ^11-XX. This alternative β′-site cleavage of APP decreases the generation of Aβ^1-XX forms, which is how the A673T mutation of APP functions protectively against AD. Similarly, APP A673V is preferentially cleaved at the β-site rather than the β′-site. This increases the generation of CTFβ/C99 and the subsequent Aβ^1-XX forms, compared with wild-type APP, and is the mechanism whereby APP A673V functions pathogenically. The previous suggestion that the molecular and cellular mechanisms underpinning the protective A673T mutation of APP occurred via decreased amyloidogenic processing of APP has been controversial. Our novel finding that the amino acid sequence within the Aβ region alters a property of APP cleavage by BACE1 is likely, rather than the conventional explanation that an APP mutation induces intracellular trafficking of APP into an amyloidogenic pathway.