A stress hormone produced during moderate exercise protects the brain from memory changes linked to the disease, found the study by the University of Nottingham.
The findings could also explain why people vulnerable to stress are at more risk of developing dementia, researchers believe.
They may have abnormal functioning of the protective hormone and its related brain receptor, making them more susceptible to symptoms, the 'Daily Mail' reported.
There is growing evidence that physical and mental activity can cut the chances of developing Alzheimer's, or slowing its progression, but until now it has been unclear what mechanism is involved.
Dr Marie-Christine Pardon and colleagues carried out work to establish the role of the stress hormone CRF (corticotrophin-releasing factor) in the onset of the disease.
Normal levels of CRF are beneficial to the brain, keeping the memory sharp, and studies have found Alzheimer's sufferers have reduced CRF levels.
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Researchers used an experimental drug to block CRF in the brains of mice with a form of Alzheimer's disease.
The mice had reduced anxiety but increased reaction when confronted by a stressful situation - in this case being placed in a new environment.
This was due to the abnormal functioning of the brain receptor CRFR1 which is normally activated by CRF, explaining why people susceptible to stress are more at risk of developing Alzheimer's.
The researchers also found interrupting the hormone from binding on to the CRFR1 receptor blocked the improvement of memory normally promoted by exercise.
But, in mice with Alzheimer's, a repeated regime of moderate exercise restored the normal function of the CRF system allowing its memory enhancing effects.
The study showed the switching on of this particular brain receptor during exercise increased the density of connections between nerve cells, the loss of which is thought to be responsible for the early memory loss seen in Alzheimer's patients.
"This is the first time researchers have been able to identify a brain process directly responsible for the beneficial effects of exercise in slowing down the progression of the early memory decline characteristics of Alzheimer's disease," Pardon said.
The study was published in the Journal of Alzheimer's Disease.