Cleavage of amyloid precursor protein (APP) by BACE-1 (β-site APP cleaving enzyme-1) is the rate-limiting step in amyloid-β (Aβ) production and a neuropathologic hallmark of Alzheimer's disease; thus, physical approximation of this substrate-enzyme pair is a crucial event with broad biological and therapeutic implications. Despite much research, neuronal locales of APP and BACE-1 convergence and APP cleavage remain unclear. Here we report an optical assay, based on fluorescence complementation, for visualizing in cellulo APP–BACE-1 interactions as a simple on/off signal. Combining this with other assays tracking the fate of internalized APP in hippocampal neurons, we found that APP and BACE-1 interacted in both biosynthetic and endocytic compartments, particularly along recycling microdomains such as dendritic spines and presynaptic boutons. In axons, APP and BACE-1 were cotransported, and they also interacted during transit. Finally, our assay revealed that the Alzheimer's disease–protective 'Icelandic' mutation greatly attenuates APP–BACE-1 interactions, suggesting a mechanistic basis for protection. Collectively, the data challenge canonical models and provide concrete insights into long-standing controversies in the field.