Presenilins appear to form the active center of gamma-secretase but require the presence of the integral membrane proteins nicastrin, anterior pharynx defective 1, and presenilin enhancer 2 for catalytic function. We have simultaneously overexpressed all of these polypeptides, and we demonstrate functional assembly of the enzyme complex, a substantial increase in enzyme activity, and binding of all components to a transition state analogue gamma-secretase inhibitor. Co-localization of all components can be observed in the Golgi compartment, and further trafficking of the individual constituents seems to be dependent on functional assembly. Apart from its catalytic function, gamma-secretase appears to play a role in the trafficking of the beta-amyloid precursor protein, which was changed upon reconstitution of the enzyme but unaffected by pharmacological inhibition. Because the relative molecular mass and stoichiometry of the active enzyme complex remain elusive, we performed size exclusion chromatography of solubilized gamma-secretase, which yielded evidence of a tetrameric form of the complex, yet almost completely abolished enzyme activity. Gamma-secretase activity was reconstituted upon addition of an independent size exclusion chromatography fraction of lower molecular mass and nonproteinaceous nature, which could be replaced by a brain lipid extract. The same treatment was able to restore enzyme activity after immunoaffinity purification of the gamma-secretase complex, demonstrating that lipids play a key role in preserving the catalytic activity of this protease. Furthermore, these data show that it is important to discriminate between intact, inactive gamma-secretase complexes and the active form of the enzyme, indicating the care that must be taken in the study of gamma-secretase.