Amyloid precursor protein cleaving enzyme 1 (BACE1), an aspartyl protease, initiates processing of the amyloid precursor protein (APP) into β-amyloid (Aβ); the peptide likely contributes to development of Alzheimer's disease (AD). BACE1 is an attractive therapeutic target for AD treatment, but it exhibits other physiological activities and has many other substrates besides APP. Thus, inhibition of BACE1 function may cause adverse side effects. Here, we present a peptide, S1, isolated from a peptide library that selectively inhibits BACE1 hydrolytic activity by binding to the β-proteolytic site on APP and Aβ N-terminal. The S1 peptide significantly reduced Aβ levels in vitro and in vivo and inhibited Aβ cytotoxicity in SH-SY5Y cells. When applied to APPswe/PS1dE9 double transgenic mice by intracerebroventricular injection, S1 significantly improved the spatial memory as determined by the Morris Water Maze, and also attenuated their Aβ burden. These results indicate that the dual-functional peptide S1 may have therapeutic potential for AD by both reducing Aβ generation and inhibiting Aβ cytotoxicity.