Presenilin (PS)-dependent gamma-secretase cleavage is the final proteolytic step in generating amyloid beta protein (A beta), a key peptide involved in the pathogenesis of Alzheimer's disease. PS undergoes endoproteolysis by an unidentified 'presenilinase' to generate the functional N-terminal and C-terminal fragment heterodimers (NTF/CTF) that may harbor the gamma-secretase active site. To better understand the relationship between presenilinase and gamma-secretase, we characterized the biochemical properties of presenilinase and compared them with those of gamma-secretase. Similar to gamma-secretase, presenilinase was most active at acidic pH 6.3. Aspartyl protease inhibitor pepstatin A blocked presenilinase activity with an IC50 of approximately 1 microM. Difluoroketone aspartyl protease transition state analogue MW167 was relatively selective for presenilinase (IC50 < 1 microM) over gamma-secretase (IC50-16 microM). Importantly, removing the transition state mimicking moiety simultaneously abolished both presenilinase and gamma-secretase inhibition, suggesting that presenilinase, like gamma-secretase, is an aspartyl protease. Interestingly, several of the most potent gamma-secretase inhibitors (IC50 = 0.3 or 20 nM) failed to block presenilinase activity. Although de novo generation of PS1 fragments coincided with production of A beta in vitro, blocking presenilinase activity without reducing pre-existing fragment levels permitted normal de novo generation of A beta and amyloid intracellular domain. Therefore, presenilinase has characteristics of an aspartyl protease, but this activity is distinct from gamma-secretase.