β-Secretase, BACE1 is a neuron-specific membrane-associated protease that cleaves amyloid precursor protein (APP) to generate β-amyloid protein (Aβ). BACE1 is partially localized in lipid rafts. We investigated whether lipid raft localization of BACE1 affects Aβ production in neurons using a palmitoylation-deficient mutant and further analyzed the relationship between palmitoylation of BACE1 and its shedding and dimerization. We initially confirmed that BACE1 is mainly palmitoylated at four C-terminal cysteine residues in stably transfected neuroblastoma cells. We found that raft localization of mutant BACE1 lacking the palmitoylation modification was markedly reduced in comparison to wild-type BACE1 in neuroblastoma cells as well as rat primary cortical neurons expressing BACE1 via recombinant adenoviruses. In primary neurons, expression of wild-type and mutant BACE1 enhanced production of Aβ from endogenous or overexpressed APP to similar extents with the β-C-terminal fragment (β-CTF) of APP mainly distributed in nonraft fractions. Similarly, β-CTF was recovered mainly in nonraft fractions of neurons expressing Swedish mutant APP only. These results show that raft association of BACE1 does not influence β-cleavage of APP and Aβ production in neurons, and support the view that BACE1 cleaves APP mainly in nonraft domains. Thus, we propose a model of neuronal Aβ generation involving mobilization of β-CTF from nonraft to raft domains. Additionally, we obtained data indicating that palmitoylation plays a role in BACE1 shedding but not dimerization.