␥-Secretase is a membrane-associated endoprotease that catalyzes the final step in the processing of Alzheimer's -amyloid precursor protein (APP), resulting in the release of amyloid -peptide (A). The molecular identity of ␥-secretase remains in question, although recent studies have implicated the presenilins, which are membrane-spanning proteins localized predominantly in the endoplasmic reticulum (ER). Based on these observations, we have tested the hypothesis that ␥-secretase cleavage of the membrane-anchored C-terminal stump of APP (i.e. C99) occurs in the ER compartment. When recombinant C99 was expressed in 293 cells, it was localized mainly in the Golgi apparatus and gave rise to abundant amounts of A. Co-expression of C99 with mutant forms of presenilin-1 (PS1) found in familial Alzheimer's disease resulted in a characteristic elevation of the A 42 /A 40 ratio, indicating that the N-terminal exodomain of APP is not required for mutant PS1 to influence the site of ␥-secretase cleavage. Biogenesis of both A 40 and A 42 was almost completely eliminated when C99 was prevented from leaving the ER by addition of a di-lysine retention motif (KKQN) or by co-expression with a dominant-negative mutant of the Rab1B GTPase. These findings indicate that the ER is not a major intracellular site for ␥-secretase cleavage of C99. Thus, by inference, PS1 localized in this compartment does not appear to be active as ␥-secretase. The results suggest that presenilins may acquire the characteristics of ␥-secretase after leaving the ER, possibly by assembling with other proteins in peripheral membranes.Amyloid -peptide (A) 1 is the major molecular component of the cerebral amyloid plaques associated with Alzheimer's disease. The cellular pathways involved in the biogenesis of A have been the subject of intense investigation since the discovery that A originates from intracellular endoproteolytic processing of a type I membrane-spanning glycoprotein termed amyloid precursor protein (APP) (1-4). Extensive studies have established that APP can be processed via two alternative routes, one of which yields the 4-kDa A, whereas the other yields a truncated non-amyloidogenic peptide (p3) (5, 6). In most cells the non-amyloidogenic pathway predominates. The first step involves the cleavage of APP within the A domain by a protease termed ␣-secretase (7-9). After release of the Nterminal exodomain, the residual 83-amino acid membranespanning C-terminal fragment is further processed by another protease termed ␥-secretase to remove the cytoplasmic tail and generate p3 (6, 10). Because the latter cleavage occurs within the predicted membrane spanning region of APP (11-13), ␥-secretase is generally thought to be an intramembrane protease. In the alternative amyloidogenic pathway, APP is initially cleaved proximal to the A sequence by -secretase, leaving a 99-amino acid C-terminal fragment (C99) that contains the intact A sequence and the cytoplasmic tail (1,14,15). Thus, when ␥-secretase cuts the latter substrate, A is rel...