We report the novel regulation of proteolytic processing of amyloid precursor protein (APP) by DISC1, a major risk factor for psychiatric illnesses, such as depression and schizophrenia. RNAi knockdown of DISC1 in mature primary cortical neurons led to a significant increase in the levels of intracellular α-C-terminal fragment of APP (APP-CTFα) and the corresponding N-terminal-secreted ectodomain product sAPPα. DISC1 knockdown also elicited a significant decrease in the levels of amyloid beta (Aβ) 42 and Aβ40. These aberrant proteolytic events were successfully rescued by co-expression of wild-type DISC1, but not by mutant DISC1 lacking the amino acids required for the interaction with APP, suggesting that APP–DISC1 protein interactions are crucial for the regulation of the C-terminal proteolysis. In a genetically engineered model in which a major full-length DISC1 isoform is depleted, consistent changes in APP processing were seen: an increase in APP-CTFα and decrease in Aβ42 and Aβ40 levels. Finally, we found that knockdown of DISC1 increased the expression of APP at the cell surface and decreased its internalization. The presented DISC1 mechanism of APP proteolytic processing and Aβ peptide generation, which is central to Alzheimer’s disease pathology, suggests a novel interface between neurological and psychiatric conditions.