Amyloid-β (Aβ) peptide-binding alcohol dehydrogenase (ABAD), an enzyme present in neuronal mitochondria, exacerbates Aβ-induced cell stress. The interaction of ABAD with Aβ exacerbates Aβ-induced mitochondrial and neuronal dysfunction. Here, we show that inhibition of the ABAD-Aβ interaction, using a decoy peptide (DP) in vitro and in vivo, protects against aberrant mitochondrial and neuronal function and improves spatial learning/memory. Intraperitoneal administration of ABAD-DP [fused to the transduction of human immunodeficiency virus 1-transactivator (Tat) protein and linked to the mitochondrial targeting sequence (Mito) (TAT-mito-DP) to transgenic APP mice (Tg mAPP)] blocked formation of ABAD-Aβ complex in mitochondria, increased oxygen consumption and enzyme activity associated with the mitochondrial respiratory chain, attenuated mitochondrial oxidative stress, and improved spatial memory. Similar protective effects were observed in Tg mAPP mice overexpressing neuronal ABAD decoy peptide (Tg mAPP/mito-ABAD). Notably, inhibition of the ABAD-Aβ interaction significantly reduced mitochondrial Aβ accumulation. In parallel, the activity of mitochondrial Aβ-degrading enzyme PreP (presequence peptidase) was enhanced in Tg mAPP mitochondria expressing the ABAD decoy peptide. These data indicate that segregating ABAD from Aβ protects mitochondria/neurons from Aβ toxicity; thus, ABAD-Aβ interaction is an important mechanism underlying Aβ-mediated mitochondrial and neuronal perturbation. Inhibitors of ABAD-Aβ interaction may hold promise as targets for the prevention and treatment of Alzheimer's disease.