Flight Crew Air Transport Pilot (ATP)
Confusion; Human-Machine Interface
Aircraft Equipment Problem Less Severe; Deviation - Altitude Overshoot; Deviation / Discrepancy - Procedural Clearance
Flight Crew Overcame Equipment Problem; Flight Crew Returned To Clearance; Flight Crew FLC Overrode Automation
Aircraft
Descending via the RNAV Arrival; we were cleared to cross ZZZ intersection at 12;000 feet MSL and 250 knots.  Approaching 12;000 feet; ALT CAP annunciated properly; then ALT HLD annunciated properly.  The nose then dropped and the aircraft continued to descend.  Captain re-selected ALT HLD mode with no effect.  Captain then rolled the Vertical Speed into a positive rate of climb with no effect.  He then disconnected the Autopilot and hand flew the aircraft smoothly back to the proper altitude of 12;000 feet.  Lowest altitude reached during the event was approximately 11;550 feet (450 feet below assigned altitude).At 12;000 feet MSL; the autopilot was re-engaged for a test.  The nose of the aircraft once again lowered into a descent while ALT HLD mode remained annunciated.  The AP TRM also annunciated at this time.  Autopilot was disconnected and the aircraft was hand flown on the remainder of the arrival and approach.  Maintenance was notified and briefed on the failure upon gate arrival.  Follow on crew was also briefed on the event and failure.
[Report narrative contained no additional information].
While in a descent an MD-80 flight crew overshot the level-off at 12;000 feet because the altitude capture feature failed. They disconnected the autopilot and hand flew the aircraft to a successful landing.