The invention provides transgenic animals that are heterozygous or homozygous for a nonfunctional allele of BACE-1. These animals show normal development indicating that BACE-1 is not necessary for development and hence is an appropriate therapeutic target. The transgenic animals are useful in various screening assays including identifying inhibitors of other enzymes involved in processing of APP to A.beta. and determining a toxicity profile of inhibitors of BACE-1.