Reactive astrocytes and microglia in Alzheimer's disease surround amyloid plaques and secrete proinflammatory cytokines that affect neuronal function. Relationship between cytokine signaling and amyloid-beta peptide (Abeta) accumulation is poorly understood. Thus, we generated a novel Swedish beta-amyloid precursor protein mutant (APP) transgenic mouse in which the interferon (IFN)-gamma receptor type I was knocked out (APP/GRKO). IFN-gamma signaling loss in the APP/GRKO mice reduced gliosis and amyloid plaques at 14 months of age. Aggregated Abeta induced IFN-gamma production from co-culture of astrocytes and microglia, and IFN-gamma elicited tumor necrosis factor (TNF)-alpha secretion in wild type (WT) but not GRKO microglia co-cultured with astrocytes. Both IFN-gamma and TNF-alpha enhanced Abeta production from APP-expressing astrocytes and cortical neurons. TNF-alpha directly stimulated beta-site APP-cleaving enzyme (BACE1) expression and enhanced beta-processing of APP in astrocytes. The numbers of reactive astrocytes expressing BACE1 were increased in APP compared with APP/GRKO mice in both cortex and hippocampus. IFN-gamma and TNF-alpha activation of WT microglia suppressed Abeta degradation, whereas GRKO microglia had no changes. These results support the idea that glial IFN-gamma and TNF-alpha enhance Abeta deposition through BACE1 expression and suppression of Abeta clearance. Taken together, these observations suggest that proinflammatory cytokines are directly linked to Alzheimer's disease pathogenesis.