Alzheimer's amyloid precursor protein 695 (APP) is a plasma membrane protein, which is known to be the source of the toxic amyloid beta (Abeta) peptide associated with the pathogenesis of Alzheimer's disease (AD). Here we demonstrate that by virtue of its chimeric NH2-terminal signal, APP is also targeted to mitochondria of cortical neuronal cells and select regions of the brain of a transgenic mouse model for AD. The positively charged residues at 40, 44, and 51 of APP are critical components of the mitochondrial-targeting signal. Chemical cross-linking together with immunoelectron microscopy show that the mitochondrial APP exists in NH2-terminal inside transmembrane orientation and in contact with mitochondrial translocase proteins. Mutational studies show that the acidic domain, which spans sequence 220-290 of APP, causes the transmembrane arrest with the COOH-terminal 73-kD portion of the protein facing the cytoplasmic side. Accumulation of full-length APP in the mitochondrial compartment in a transmembrane-arrested form, but not lacking the acidic domain, caused mitochondrial dysfunction and impaired energy metabolism. These results show, for the first time, that APP is targeted to neuronal mitochondria under some physiological and pathological conditions.