BACKGROUND: Alzheimer's disease (AD)-linked β-amyloid (Aβ) accumulates in multivesicular bodies (MVBs) with the onset of AD pathogenesis. Alterations in endosomes are among the earliest changes associated with AD but the mechanism(s) that cause endosome enlargement and the effects of MVB dysfunction on Aβ accumulation and tau pathology are incompletely understood. METHODS: MVB size and Aβ fibrils in primary neurons were visualized by electron microscopy and confocal fluorescent microscopy. MVB-dysfunction, modelled by expression of dominant negative VPS4A (dnVPS4A), was analysed by biochemical methods and exosome isolation. RESULTS: Here we show that AD transgenic neurons have enlarged MVBs compared to wild type neurons. Uptake of exogenous Aβ also leads to enlarged MVBs in wild type neurons and generates fibril-like structures in endocytic vesicles. With time fibrillar oligomers/fibrils can extend out of the endocytic vesicles and are eventually detectable extracellularly. Further, endosomal sorting complexes required for transport (ESCRT) components were found associated with amyloid plaques in AD transgenic mice. The phenotypes previously reported in AD transgenic neurons, with net increased intracellular levels and reduced secretion of Aβ, were mimicked by blocking recycling of ESCRT-III by dnVPS4A. DnVPS4A further resembled AD pathology by increasing tau phosphorylation at serine 396 and increasing markers of autophagy. CONCLUSIONS: We demonstrate that Aβ leads to MVB enlargement and that amyloid fibres can form within the endocytic pathway of neurons. These results are consistent with the scenario of the endosome-lysosome system representing the site of initiation of Aβ aggregation. In turn, a dominant negative form of the CHMP2B-interacting protein VPS4A, which alters MVBs, leads to accumulation and aggregation of Aβ as well as tau phosphorylation, mimicking the cellular changes in AD.