Deregulation of calcium has been implicated in neurodegenerative diseases, including Alzheimer’s disease (AD). Previously, we showed that saturated free-fatty acid, palmitate, causes AD-like changes in primary cortical neurons mediated by astrocytes. However, the molecular mechanisms by which conditioned media from astrocytes cultured in palmitate induces AD-like changes in neurons are unknown. This study demonstrates that this condition media from astrocytes elevates calcium level in the neurons, which subsequently increases calpain activity, a calcium-dependent protease, leading to enhance p25/Cdk5 activity and phosphorylation and activation of the STAT3 (signal transducer and activator of transcription) transcription factor. Inhibiting calpain or Cdk5 significantly reduces the upregulation in nuclear level of pSTAT3, which we found to transcriptionally regulate both BACE1 and presenilin-1, the latter is a catalytic subunit of γ-secretase. Decreasing pSTAT3 levels reduced the mRNA levels of both BACE1 and presenilin-1 to near control levels. These data demonstrate a signal pathway leading to the activation of STAT3, and the generation of the amyloid peptide. Thus, our results suggest that STAT3 is an important potential therapeutic target of AD pathogenesis.