Alzheimer disease (AD) is neuropathologically characterized by the formation of senile plaques from amyloid-beta (A beta) and neurofibrillary tangles composed of phosphorylated Tau. Although there is growing evidence for the pathogenic role of soluble A beta species in AD, the major question of how A beta induces hyperphosphorylation of Tau remains unanswered. To address this question, we here developed a novel cell coculture system to assess the effect of extracellular A beta at physiologically relevant levels naturally secreted from donor cells on the phosphorylation of Tau in recipient cells. Using this assay, we demonstrated that physiologically relevant levels of secreted A beta are sufficient to cause hyperphosphorylation of Tau in recipient N2a cells expressing human Tau and in primary culture neurons. This hyperphosphorylation of Tau is inhibited by blocking A beta production in donor cells. The expression of familial AD-linked PSEN1 mutants and APP Delta E693 mutant that induce the production of oligomeric A beta in donor cells results in a similar hyperphosphorylation of Tau in recipient cells. The mechanism underlying the A beta-induced Tau hyperphosphorylation is mediated by the impaired insulin signal transduction because we demonstrated that the phosphorylation of Akt and GSK3 beta upon insulin stimulation is less activated under this condition. Treating cells with the insulin-sensitizing drug rosiglitazone, a peroxisome proliferator-activated receptor gamma agonist, attenuates the A beta-dependent hyperphosphorylation of Tau. These findings suggest that the disturbed insulin signaling cascade may be implicated in the pathways through which soluble A beta induces Tau phosphorylation and further support the notion that correcting insulin signal dysregulation in AD may offer a potential therapeutic approach.