Oligomeric forms of β-amyloid (Aβ) have potent neurotoxic activity and are the primary cause of neuronal injury and cell death in Alzheimer's disease (AD). Compounds that perturb oligomer formation or structure may therefore be therapeutic for AD. We previously reported that d-[(chGly)-(Tyr)-(chGly)-(chGly)-(mLeu)]-NH2 (SEN304) is able to inhibit Aβ aggregation and toxicity, shown primarily by thioflavin T fluorescence and MTT (Kokkoni, N. et al. (2006) N-Methylated peptide inhibitors of β-amyloid aggregation and toxicity. Optimisation of inhibitor structure. Biochemistry45, 9906-9918). Here we extensively characterize how SEN304 affects Aβ(1-42) aggregation and toxicity, using biophysical assays (thioflavin T, circular dichroism, SDS-PAGE, size exclusion chromatography, surface plasmon resonance, traveling wave ion mobility mass spectrometry, electron microscopy, ELISA), toxicity assays in cell culture (MTT and lactate dehydrogenase in human SH-SHY5Y cells, mouse neuronal cell death and synaptophysin) and long-term potentiation in a rat hippocampal brain slice. These data, with dose response curves, show that SEN304 is a powerful inhibitor of Aβ(1-42) toxicity, particularly effective at preventing Aβ inhibition of long-term potentiation. It can bind directly to Aβ(1-42), delay β-sheet formation and promote aggregation of toxic oligomers into a nontoxic form, with a different morphology that cannot bind thioflavin T. SEN304 appears to work by inducing aggregation, and hence removal, of Aβ oligomers. It is therefore a promising lead compound for Alzheimer's disease.