The Drosophila Appl gene encodes a transmembrane protein that is expressed exclusively in neurons. Amino acid comparisons show that APPL protein is a member of the amyloid precursor protein (APP)-like family of proteins. Similar to mammalian APP-family proteins, APPL is synthesized as a transmembrane holoprotein and cleaved to release a large secreted amino-terminal domain. Using immunocytochemical methods, we have analyzed the distribution of APPL in the Drosophila CNS. Surprisingly, although APPL is present in all neuronal cell bodies, the neurophil shows sterotypic differential distribution. Double-labeling experiments with different neuronal markers were used to distinguish between APPL associated with neuronal processes or extracellular matrix. The distribution of APPL protein produced from transgenes encoding wild-type (APPL), secretion-defective (APPLsd), and constitutively secreted (APPLs) forms was analyzed in an Appl-deficient background to determine which APPL form is associated with different neuropil regions. We found that APPLsd protein is enriched where APPL immunoreactivity coincides with neuronal processes. In contrast, APPLs preferentially localizes to those parts of the neuropil that show a diffuse APPL signal that rarely colocalizes with processes, and thus seems to be a component of the extracellular matrix. These data indicate that proteolytic cleavage and trafficking of APPL is differentially regulated in different neuronal populations. Through metamorphosis, APPL is especially abundant in growing axons and in areas where synapses are forming. Interestingly, in adult brains, APPL protein is enriched in the mushroom bodies and to a lesser extent in the central complex, structures involved in learning and memory.