There is extensive evidence that cholesterol and membrane lipids play a key role in Alzheimer disease (AD) pathogenesis. Cyclodextrins (CD) are cyclic oligosaccharide compounds widely used to bind cholesterol. Because CD exerts significant beneficial effects in Niemann-Pick type C disease, which shares neuropathological features with AD, we examined the effects of hydroxypropyl-β-CD (HP-β-CD) in cell and mouse models of AD. Cell membrane cholesterol accumulation was detected in N2a cells overexpressing Swedish mutant APP (SwN2a), and the level of membrane cholesterol was reduced by HP-β-CD treatment. HP-β-CD dramatically lowered the levels of Aβ42 in SwN2a cells, and the effects were persistent for 24 h after withdrawal. 4 mo of subcutaneous HP-β-CD administration significantly improved spatial learning and memory deficits in Tg19959 mice, diminished Aβ plaque deposition, and reduced tau immunoreactive dystrophic neurites. HP-β-CD lowered levels of Aβ42 in part by reducing β cleavage of the APP protein, and it also up-regulated the expression of genes involved in cholesterol transport and Aβ clearance. This is the first study to show neuroprotective effects of HP-β-CD in a transgenic mouse model of AD, both by reducing Aβ production and enhancing clearance mechanisms, which suggests a novel therapeutic strategy for AD.