Mitochondrial dysfunction is associated with familial Alzheimer’s disease (fAD), and the accumulation of damaged mitochondria has been reported as an initial symptom that further contributes to disease progression. In the amyloidogenic pathway, the amyloid precursor protein (APP) is cleaved by β-secretase to generate a C-terminal fragment, which is then cleaved by γ-secretase to produce amyloid-beta (Aβ). The accumulation of Aβ and its detrimental effect on mitochondrial function are well known, yet the amyloid precursor protein-derived C-terminal fragments (APP-CTFs) contributing to this pathology have rarely been reported. We demonstrated the effects of APP-CTFs-related pathology using induced neural stem cells (iNSCs) from AD patient-derived fibroblasts. APP-CTFs accumulation was demonstrated to mainly occur within mitochondrial domains and to be both a cause and a consequence of mitochondrial dysfunction. APP-CTFs accumulation also resulted in mitophagy failure, as validated by increased LC3-II and p62 and inconsistent PTEN-induced kinase 1 (PINK1)/E3 ubiquitin ligase (Parkin) recruitment to mitochondria and failed fusion of mitochondria and lysosomes. The accumulation of APP-CTFs and the causality of impaired mitophagy function were also verified in AD patient-iNSCs. Furthermore, we confirmed this pathological loop in presenilin knockout iNSCs (PSEN KO-iNSCs) because APP-CTFs accumulation is due to γ-secretase blockage and similarly occurs in presenilin-deficient cells. In the present work, we report that the contribution of APP-CTFs accumulation is associated with mitochondrial dysfunction and mitophagy failure in AD patient-iNSCs as well as PSEN KO-iNSCs.