Amyloid β protein (Aβ) is the principal component of neuritic plaques in Alzheimer's disease (AD). Aβ is derived from β amyloid precursor protein (APP) by β‐ and γ‐secretases. Beta‐site APP cleaving enzyme 1 (BACE1) has been identified as the major β‐secretase. BACE2 is the homolog of BACE1. The BACE2 gene is on chromosome 21 and has been implicated in the pathogenesis of AD. However, the function of BACE2 in Aβ generation is controversial. Some studies have shown that BACE2 cleaved APP at the β‐site whereas other studies showed it cleaved around the α‐secretase site. To elucidate the involvement of BACE2 in AD pathogenesis, we compared BACE2 and BACE1 gene regulation and their functions in Aβ generation. We cloned and functionally characterized the human BACE2 promoter. The BACE2 gene is controlled by a TATA‐less promoter. Though Sp1 can regulate both BACE1 and BACE2 genes, comparative sequence analysis and transcription factor prediction showed little similarity between the two promoters. BACE1 increased APP cleavage at the β‐site and Aβ production whereas BACE2 did not. Overexpression of BACE2 significantly increased sAPP levels in conditioned media but markedly reduced Aβ production. Knockdown of BACE2 resulted in increased APP C83. Our data indicate that despite being homologous in amino acid sequence, BACE2 and BACE1 have distinct functions and transcriptional regulation. BACE2 is not a β‐secretase, but processes APP within the Aβ domain at a site downstream of the α‐secretase cleavage site. Our data argue against BACE2 being involved in the formation of neuritic plaques in AD.—Sun, X., Wang, Y., Qing, H., Christensen, M. A., Liu, Y., Zhou, W., Tong, Y., Xiao, C., Huang, Y., Zhang, S., Liu, X., Song, W. Distinct transcriptional regulation and function of the human BACE2 and BACE1 genes. FASEB J. 19, 739–749 (2005)