Secretory proteins aggregate into non-soluble dense-core granules in recycling endosome-like compartments prior to regulated release. By contrast, aberrantly processed, secreted amyloid-β (Aβ) peptides derived from amyloid precursor protein (APP) form pathological extracellular amyloidogenic aggregations in late-stage Alzheimer's disease (AD). By examining living Drosophila prostate-like secondary cells, we show that both APP and Aβ peptides affect normal biogenesis of dense-core granules. These cells generate dense-core granules and secreted nanovesicles called Rab11-exosomes via evolutionarily conserved mechanisms within highly enlarged secretory compartments with recycling endosomal identity. The fly APP homologue, APP-like (APPL), associates with these vesicles and the compartmental limiting membrane, from where its extracellular domain modulates protein aggregation. Proteolytic release of this domain permits mini-aggregates to coalesce into a large central dense-core granule. Mutant Aβ expression disrupts this process and compartment motility, and increases aberrant lysosomal targeting, mirroring previously unexplained early-stage pathological events in AD. It also promotes cell-to-cell propagation of these endolysosomal defects, again phenocopying changes observed in AD. Our data therefore demonstrate physiological roles for APP in membrane-dependent protein aggregation, involving molecular mechanisms, which when disrupted by Aβ peptides, trigger Alzheimer's disease-relevant pathologies.