Abnormalities of the endolysosomal and autophagy systems are found in Alzheimer's disease, but it is not clear whether defects in these systems are a cause or consequence of degenerative processes in the disease. In human neuronal models of monogenic Alzheimer's disease, APP and PSEN1 mutations disrupt lysosome function and autophagy, leading to impaired lysosomal proteolysis and defective autophagosome clearance. Processing of APP by γ-secretase is central to the pathogenic changes in the lysosome-autophagy system caused by PSEN1 and APP mutations: reducing production of C-terminal APP by inhibition of BACE1 rescued these phenotypes in both APP and PSEN1 mutant neurons, whereas inhibition of γ-secretase induced lysosomal and autophagic pathology in healthy neurons. Defects in lysosomes and autophagy due to PSEN1 mutations are rescued by CRISPR-knockout of APP. These data demonstrate a key role for proteolysis of the C-terminal of APP by γ-secretase in neuronal dysfunction in monogenic Alzheimer's disease.