Neuropil deposition of beta-amyloid (Aβ) peptides is believed to be a key event in the neurodegenerative process of Alzheimer’s disease (AD). An early and consistent clinical finding in AD is olfactory dysfunction with associated pathology. Interestingly, transgenic amyloid precursor protein (Tg2576) mice also show early amyloid pathology in olfactory regions. Moreover, a recent study indicates that axonal transport is compromised in the olfactory system of Tg2576 mice, as measured by manganese-enhanced magnetic resonance imaging (MEMRI). Here we tested whether the putative axonal transport deficit in the Tg2576 mouse model improves in response to a selective gamma-secretase inhibitor, N-[cis-4-[(4-chlorophenyl)-sulfonyl]-4-(2,5-difluorophenyl)cyclohexyl]-1,1,1-trifluoromethanesulfonamide (MRK-560). Tg2576 mice or wild-type (WT) littermates were treated daily with MRK-560 (30 μmol/kg) or vehicle for 4 (acute) or 29 days (chronic). The subsequent MEMRI analysis revealed a distinct axonal transport dysfunction in the Tg2576 mice compared with its littermate controls. Interestingly, the impairment of axonal transport could be fully reversed by chronic administration of MRK-560, in line with the significantly lowered levels of both soluble and insoluble forms of Aβ found in the brain and olfactory bulbs (OBs) following treatment. However, no improvement of axonal transport was observed after acute treatment with MRK-560, where soluble but not insoluble forms of Aβ were reduced in the brain and OBs. The present results show that axonal transport is impaired in Tg2576 mice compared with WT controls, as measured by MEMRI. Chronic treatment in vivo with a gamma-secretase inhibitor, MRK-560, significantly reduces soluble and insoluble forms of Aβ, and fully reverses the axonal transport dysfunction.