Autophagy, the major degradative pathway for organelles and long-lived proteins, is essential for the survival of neurons. Mounting evidence has implicated defective autophagy in the pathogenesis of several major neurodegenerative diseases, particularly Alzheimer's disease (AD). A continuum of abnormalities of the lysosomal system has been identified in neurons of the AD brain, including pathological endocytic pathway responses at the very earliest disease stage and a progressive disruption of autophagy leading to the massive buildup of incompletely digested substrates within dystrophic axons and dendrites. In this review, we examine research on autophagy in AD and evaluate evidence addressing the specific step or steps along the autophagy pathway that may be defective. Current evidence strongly points to disruption of substrate proteolysis within autolysosomes for the principal mechanism underlying autophagy failure in AD. In the most common form of familial early onset AD, mutant presenilin 1 disrupts autophagy directly by impeding lysosomal proteolysis while, in other forms of AD, autophagy impairments may involve different genetic or environmental factors. Attempts to restore more normal lysosomal proteolysis and autophagy efficiency in mouse models of AD pathology have yielded promising therapeutic effects on neuronal function and cognitive performance, demonstrating the relevance of autophagy failure to the pathogenesis of AD and the potential of autophagy modulation as a therapeutic strategy.