β-Secretase (BACE1) is a major drug target for combating Alzheimer's disease (AD). Here we show that BACE1−/− mice develop significant retinal pathology including retinal thinning, apoptosis, reduced retinal vascular density and an increase in the age pigment, lipofuscin. BACE1 expression is highest in the neural retina while BACE2 was greatest in the retinal pigment epithelium (RPE)/choroid. Pigment epithelial-derived factor, a known regulator of γ-secretase, inhibits vascular endothelial growth factor (VEGF)-induced in vitro and in vivo angiogenesis and this is abolished by BACE1 inhibition. Moreover, intravitreal administration of BACE1 inhibitor or BACE1 small interfering RNA (siRNA) increases choroidal neovascularization in mice. BACE1 induces ectodomain shedding of vascular endothelial growth factor receptor 1 (VEGFR1) which is a prerequisite for γ-secretase release of a 100 kDa intracellular domain. The increase in lipofuscin following BACE1 inhibition and RNAI knockdown is associated with lysosomal perturbations. Taken together, our data show that BACE1 plays a critical role in retinal homeostasis and that the use of BACE inhibitors for AD should be viewed with extreme caution as they could lead to retinal pathology and exacerbate conditions such as age-related macular degeneration.