The presenilin (PS)/gamma-secretase system promotes production of the A beta (A beta) peptides by mediating cleavage of amyloid precursor protein (APP) at the gamma-sites. This system is also involved in the processing of type-I transmembrane proteins, including APP, cadherins and Notch1 receptors, at the epsilon-cleavage site, resulting in the production of peptides containing the intracellular domains (ICDs) of the cleaved proteins. Emerging evidence shows that these peptides have important biological functions, raising the possibility that their inhibition by gamma-secretase inhibitors may be detrimental to the cell. Here, we show that peptide E-Cad/CTF2, produced by the PS1/gamma-secretase processing of E-cadherin, promotes the lysosomal/endosomal degradation of the transmembrane APP derivatives, C99 and C83, and inhibits production of the APP ICD (AICD). In addition, E-Cad/CTF2 decreases accumulation of total secreted A beta. These data suggest a novel method to promote the non-amyloidogenic degradation of A beta precursors and to inhibit A beta production.