Defects in endosomal sorting have been implicated in Alzheimer's disease. Endosomal traffic is largely controlled by phosphatidylinositol-3-phosphate, a phosphoinositide synthesized primarily by lipid kinase Vps34. Here we show that phosphatidylinositol-3-phosphate is selectively deficient in brain tissue from humans with Alzheimer's disease and Alzheimer's disease mouse models. Silencing Vps34 causes an enlargement of neuronal endosomes, enhances the amyloidogenic processing of amyloid precursor protein in these organelles and reduces amyloid precursor protein sorting to intraluminal vesicles. This trafficking phenotype is recapitulated by silencing components of the ESCRT (Endosomal Sorting Complex Required for Transport) pathway, including the phosphatidylinositol-3-phosphate effector Hrs and Tsg101. Amyloid precursor protein is ubiquitinated, and interfering with this process by targeted mutagenesis alters sorting of amyloid precursor protein to the intraluminal vesicles of endosomes and enhances amyloid-beta peptide generation. In addition to establishing phosphatidylinositol-3-phosphate deficiency as a contributing factor in Alzheimer's disease, these results clarify the mechanisms of amyloid precursor protein trafficking through the endosomal system in normal and pathological states.