A novel class of substrate-based beta-secretase (BACE1) inhibitors containing a hydroxymethylcarbonyl (HMC) isostere was designed and synthesized. Phenylnorstatine [(2R,3S)-3-amino-2-hydroxy-4-phenylbutyric acid; Pns] was an effective transition-state mimic at the P(1) position. Structure-activity relationships (SARs) of the P(3)-P(3)' positions of BACE1 inhibitors were studied.