Gamma-secretase is responsible for the proteolytic processing of a variety of membrane-associated fragments derived from type I integral membrane proteins, including the amyloid beta-protein precursor and the Notch receptor. This enzyme is composed of four different integral membrane proteins: presenilin, nicastrin, Aph-1, and Pen-2. During assembly and maturation of the protease complex, presenilin is endoproteolyzed into two subunits, each of which contributes one aspartate to the active site of an aspartyl protease. Substrate apparently interacts with an initial docking site before passing in whole or in part between the two presenilin subunits to the internal water-containing active site. The ectodomain of nicastrin also interacts with the N-terminus of the substrate as an essential step in substrate recognition and processing. Sites for allosteric regulation on the protease complex allow selective inhibition or modulation of APP processing without interfering with Notch signaling, and such selective agents may represent promising leads for the development of Alzheimer's disease therapeutics. Elucidation of detailed structural features of gamma-secretase and other membrane-embedded proteases is the next frontier in understanding how these enzymes carry out hydrolysis within the lipid bilayer.