2-hydroxypropyl-β-cyclodextrin (CYCLO), a modifier of cholesterol efflux from cellular membrane and endo-lysosomal compartments, reduces lysosomal lipid accumulations and has therapeutic effects in animal models of Niemann-Pick disease type C and several other neurodegenerative states. Here, we investigated CYCLO effects on autophagy in wild-type mice and TgCRND8 mice-an Alzheimer's Disease (AD) model exhibiting β-amyloidosis, neuronal autophagy deficits leading to protein and lipid accumulation within greatly enlarged autolysosomes. A 14-day intracerebroventricular administration of CYCLO to 8-month-old TgCRND8 mice that exhibit moderately advanced neuropathology markedly diminished the sizes of enlarged autolysosomes and lowered their content of GM2 ganglioside and Aβ-immunoreactivity without detectably altering amyloid precursor protein processing or extracellular Aβ/β-amyloid burden. We identified two major actions of CYCLO on autophagy underlying amelioration of lysosomal pathology. First, CYCLO stimulated lysosomal proteolytic activity by increasing cathepsin D activity, levels of cathepsins B and D and two proteins known to interact with cathepsin D, NPC1 and ABCA1. Second, CYCLO impeded autophagosome-lysosome fusion as evidenced by the accumulation of LC3, SQSTM1/p62, and ubiquitinated substrates in an expanded population of autophagosomes in the absence of greater autophagy induction. By slowing substrate delivery to lysosomes, autophagosome maturational delay, as further confirmed by our in vitro studies, may relieve lysosomal stress due to accumulated substrates. These findings provide in vivo evidence for lysosomal enhancing properties of CYCLO, but caution that prolonged interference with cellular membrane fusion/autophagosome maturation could have unfavorable consequences, which might require careful optimization of dosage and dosing schedules.