Presenilin (PS, PS1/PS2) complexes are known to be responsible for the intramembranous gamma-secretase cleavage of the beta-amyloid precursor protein and signaling receptor Notch. PS holoprotein undergoes endoproteolysis by an unknown enzymatic activity to generate NH(2)- and COOH-terminal fragments, a process that is required for the formation of the active and stable PS/-gamma-secretase complex. Biochemical and genetic studies have recently identified nicastrin, APH-1, and PEN-2 as essential cofactors that physically interact with PS1 and are necessary for the gamma-secretase activity. However, their precise function in regulating the PS complex and gamma-secretase activity remains unknown. Here, we demonstrate that endogenous PEN-2 preferentially interacts with PS1 holoprotein. Down-regulation of PEN-2 expression by small interfering RNA (siRNA) abolishes the endoproteolysis of PS1, whereas overexpression of PEN-2 promotes the production of PS1 fragments, indicating a critical role for PEN-2 in PS1 endoproteolysis. Interestingly, accumulation of full-length PS1 resulting from down-regulation of PEN-2 is alleviated by additional siRNA down-regulation of APH-1. Furthermore, overexpression of APH-1 facilitates PEN-2-mediated PS1 proteolysis, resulting in a significant increase in PS1 fragments. Our data reveal a direct role of PEN-2 in proteolytic cleavage of PS1 and a regulatory function of APH-1, in coordination with PEN-2, in the biogenesis of the PS1 complex.