The amyloid b-protein (Ab) deposited in Alzheimer's disease (AD) is a normally secreted proteolytic product of the amyloid b-protein precursor (APP). Generation of Ab from the APP requires two sequential proteolytic events: an initial b-secretase cleavage at the amino terminus of the Ab sequence followed by g-secretase cleavage at the carboxyl terminus of Ab. We describe the development of a robust in vitro assay for g-secretase cleavage by showing de novo Ab production in vitro and establish that this assay monitors authentic gamma-secretase activity by documenting the production of a cognate g-CTF, confirming the size of the Ab produced by mass spectrometry, and inhibiting cleavage in this system with multiple inhibitors that alter g-secretase activity in living cells. Using this assay, we demonstrate that the g-secretase activity 1) is tightly associated with the membrane, 2) can be solubilized, 3) has a pH optimum of 6.8 but is active from pH 6.0 to pH >8.4, and 4) ascertain that activities of the g-40 and g-42 are indeed pharmacologically distinct. These studies should facilitate the purification of the protease or proteases that are responsible for this unusual activity, which is a major therapeutic target for the treatment of AD.