A novel cleavage of -amyloid precursor protein (APP), referred to as ⑀-cleavage, occurs downstream of the ␥-cleavage and generates predominantly a C-terminal fragment (CTF␥) that begins at Val-50, according to amyloid -protein (A) numbering. Whether this cleavage occurs independently of, or is coordinated with, ␥-cleavage is unknown. Using a cell-free system, we show here that, although A40 and CTF␥ 50 -99 were the predominant species produced by membranes prepared from cells overexpressing wild-type (wt) APP and wt presenilin (PS) 1 or 2, the production of CTF␥ 49 -99, which begins at Leu-49, was remarkably enhanced in membranes from cells overexpressing mutant (mt) APP or mtPS1/2 that increases the production of A42. Furthermore, a ␥-secretase inhibitor, which suppresses A40 production and paradoxically enhances A42 production at low concentrations, caused the proportion of CTF␥ 50 -99 to decrease and that of CTF␥ 49 -99 to increase significantly. These results strongly suggest a link between the production of A42 and CTF␥ 49 -99 and provide an important insight into the mechanisms of altered ␥-cleavage caused by mtAPP and mtPS1/2.Senile plaques, one of the neuropathological hallmarks of Alzheimer's disease (AD), 1 are composed primarily of amyloid -protein (A) (1). Two major A species consisting of 40 and 42 residues are generated mainly in neurons and constitutively secreted. A shorter one, A40, is predominant, and a longer one, A42, is a minor species (Ͻ10%) among secreted A species. A is produced from -amyloid precursor protein (APP), through sequential cleavage by proteases referred to as -and ␥-secretases. -Secretase was identified as a type I membrane aspartic protease -site APP-cleaving enzyme (BACE) (2), but the identity of ␥-secretase has remained unknown. ␥-Secretase cleaves APP in the middle of the transmembrane domain, releasing A and its counterpart, C-terminal fragment ␥ of APP (CTF␥). Most recent studies have shown that ␥-secretase forms a large complex composed of presenilin (PS) 1 or 2, nicastrin, PEN-2, and APH-1, and the activity of ␥-secretase is now known to depend on these proteins (3-7).One of the A species, A42, has a much higher aggregation potential (8, 9) and is believed to be initially deposited in senile plaques (10). It is reasonable to postulate that A42 accumulation in the brain is the very initial event in the development of AD including sporadic AD. Indeed, all mutations of PS1/2 and some mutations of APP that cause familial AD result in increased A42 production (11).Recently, we and other groups found that APP is cleaved by PS-dependent ␥-secretase, not only in the middle of the transmembrane domain (␥-cleavage) but also near the cytoplasmic membrane boundary (⑀-cleavage) (12-15). The major product of the latter process is a CTF␥ of APP that begins at Val-50. This cleavage site is a few residues inside the membrane from the cytoplasmic/membrane boundary and is similar to site 3 cleavage of Notch (16). Since production of CTF␥ is inhibited by a dominan...