The present invention relates to methods of treating Alzheimer's Disease which utilize agents that increase neuronal phosphotidylinositol 4,5-biphosphate (PIP2), and to differentiated stem cell-based assay systems that may be used to identify agents that modulate phosphoinositide levels and thereby treat a variety of diseases. It is based, at least in part, on the discovery that edelfosine, an agent that increases PIP2 levels by inhibiting an enzyme that catalyzes PIP2 breakdown, decreases levels of neurotoxic A&bgr;42 peptide, particularly in cells expressing a mutant presenilin gene associated with Familial Alzheimer's Disease.