Proteolytic processing of the amyloid precursor protein (APP) may lead to the formation of the Abeta peptide, the major constituent of amyloid plaques in Alzheimer`s disease. The full-length APP is a substrate for at least 2 different (alpha and beta) proteases ("secretases"). The beta-secretase, BACE, cleaves APP in the first step of processing leading to the formation of the neurotoxic Abeta. BACE competes for APP with alpha-secretase, which cleaves APP within its Abeta sequence, thus precluding Abeta formation. It is thus important to understand how is the access of the alpha- and beta-secretase to APP regulated and how are the individual activities of these secretases modulated. Both these regulatory mechanisms, access to substrate and direct activity modulation, can be determined by the lipid composition of the membrane. Integral membrane proteins (like APP and BACE), can be viewed as solutes in a two-dimensional liquid membrane, and as such their state, and biological activity, critically depend on the physico-chemical character (fluidity, curvature, surface charge distribution, lateral domain heterogeneity etc.) of the lipid bilayer. These collective membrane properties will influence the activity of embedded membrane proteins. In addition, activity regulation may involve a direct interaction with a specific lipid (cofactor or co-structure function). Interactions of membrane proteins are furthermore affected by lateral domain organization of the membrane. Previous results had suggested that the regulation of the activity of the alpha- and beta-secretases and of their access to APP is lipid dependent, and involves lipid rafts. Using the baculovirus expression system, we have purified recombinant human full-length APP and BACE to homogeneity, and reconstituted them in large (~100nm, LUVs) and giant (10-150microm, GUVs) unilamellar vesicles. Using a soluble peptide substrate mimicking the beta-cleavage site of APP, we have examined the involvement of individual lipid species in modulating BACE activity in LUVs of various lipid compositions. We have identified 3 groups of lipids that stimulate proteolytic activity of BACE: 1.cerebrosides, 2.anionic glycerophospholipids, 3. cholesterol. Furthermore, we have co-reconstituted APP and BACE together in LUVs and demonstrated that BACE cleaves APP at the correct site, generating the beta-cleaved ectodomain identical to that from cells. We have developed an assay to quantitatively follow the beta-cleavage in proteoliposomes, and we have shown that the rate of cleavage in total brain lipid proteoliposomes is higher than in phosphatidylcholine vesicles. We have also studied partitioning of APP and BACE in GUVs between liquid ordered (lo) and liquid disordered (ld) phases. In this system, significant part of the BACE pool (about 20%) partitions into the lo phase, and its partitioning into lo phase can be further enhanced by cross-linking of membrane components. Only negligible fraction of APP can be found in the lo phase. We continue to study the behavior of co-reconstituted APP and BACE in GUVs The work presented in this thesis has yielded some interesting results and raised further questions. One of the important assignments of this project will in the next stage be the characterization of the impact of membrane domain organization on the beta-cleavage. Different domain arrangements that can be hypothesized in cell membranes can be modeled by varying the degree of phase fragmentation in proteoliposomes comprising reconstituted APP and BACE.