Amylin is a hormone synthesized and co-secreted with insulin by pancreatic β-cells that crosses the blood-brain barrier and regulates satiety. Amylin from humans (but not rodents) has an increased propensity to aggregate into pancreatic islet amyloid deposits that contribute to β-cell mass depletion and development of type-2 diabetes by inducing oxidative stress and inflammation. Recent studies demonstrated that aggregated amylin also accumulates in brains of Alzheimer's disease (AD) patients, preponderantly those with type-2 diabetes. Here, we report that, in addition to amylin plaques and mixed amylin-Aβ deposits, brains of diabetic patients with AD show amylin immunoreactive deposits inside the neurons. Neuronal amylin formed adducts with 4-hydroxynonenal (4-HNE), a marker of peroxidative membrane injury, and increased synthesis of the proinflammatory cytokine interleukin (IL)-1β. These pathological changes were mirrored in rats expressing human amylin in pancreatic islets (HIP rats) and mice intravenously injected with aggregated human amylin, but not in hyperglycemic rats secreting wild-type non-amyloidogenic rat amylin. In cultured primary hippocampal rat neurons, aggregated amylin increased IL-1β synthesis via membrane destabilization and subsequent generation of 4-HNE. These effects were blocked by membrane stabilizers and lipid peroxidation inhibitors. Thus, elevated circulating levels of aggregated amylin negatively affect the neurons causing peroxidative membrane injury and aberrant inflammatory responses independent of other confounding factors of diabetes. The present results are consistent with the pathological role of aggregated amylin in the pancreas, demonstrate a novel contributing mechanism to neurodegeneration, and suggest a direct, potentially treatable link of type-2 diabetes with AD.