Intramembrane-cleaving proteases are members of a novel type of enzyme that hydrolyse substrate proteins within transmembrane regions. The presently known proteases that catalyse such cleavage reactions are membrane proteins of high hydrophobicity and multiple predicted transmembrane regions. A key feature is the positioning of active site residues in hydrophobic segments implying that the catalytic centre is assembled within the plane of the membrane. Nevertheless, all these proteases appear to utilise catalytic mechanisms similar to classic proteases that expose their active site domains in aqueous compartments. In the present review, we will address the mechanism of intramembrane proteolysis on the example of the signal peptide peptidase, and discuss how enzyme-catalysed hydrolysis of peptide bonds within the plane of a cellular membrane might occur.