A complex composed of presenilin (PS), nicastrin, PEN-2, and APH-1 is absolutely required for γ-secretase activity in vivo. Evidence has emerged to suggest a role for PS as the catalytic subunit of γ-secretase, but it has not been established that PS is catalytically active in the absence of associated subunits. We now report that bacterially synthesized, recombinant PS (rPS) reconstituted into liposomes exhibits γ-secretase activity. Moreover, an rPS mutant that lacks a catalytic aspartate residue neither exhibits reconstituted γ-secretase activity nor interacts with a transition-state γ-secretase inhibitor. Importantly, we demonstrate that rPS harboring mutations that cause early onset familial Alzheimer's disease (FAD) lead to elevations in the ratio of Aβ42 to Aβ40 peptides produced from a wild-type APP substrate and that rPS enhances the Aβ42∕ Aβ40 peptide ratio from FAD-linked mutant APP substrates, findings that are entirely consistent with the results obtained in in vivo settings. Thus, γ-secretase cleavage specificity is an inherent property of the polypeptide. Finally, we demonstrate that PEN2 is sufficient to promote the endoproteolysis of PS1 to generate the active form of γ-secretase. Thus, we conclusively establish that activated PS is catalytically competent and the bimolecular interaction of PS1 and PEN2 can convert the PS1 zymogen to an active protease.intermembrane-cleaving proteases | notch | presenilinase | reconstitution