Proteolytic processing of the transmembrane domain of the amyloid precursor protein (APP) is a key component of Alzheimer's disease pathogenesis. Using C-terminally tagged APP derivatives, we have identified by amino-terminal sequencing a novel cleavage site of APP, at Leu-49, distal to the gamma-secretase site. This was termed -cleavage. Brefeldin A treatment and pulse-chase experiments indicate that this cleavage occurs late in the secretory pathway. The level of -cleavage is decreased by expression of presenilin-1 mutants known to impair Abeta formation, and it is sensitive to the gamma-secretase inhibitors MDL28170 and L-685,458. Remarkably, it shares similarities with site 3 cleavage of Notch-1: membrane topology, cleavage before a valine, dependence on presenilins, and inhibition profile.