Gamma-secretase, a unique aspartyl protease, is required for the regulated intramembrane proteolysis of Notch and APP, pathways that are implicated, respectively, in the pathogenesis of cancer and Alzheimer disease. However, the mechanism whereby reduction of gamma-secretase causes tumors such as squamous cell carcinoma (SCC) remains poorly understood. Here, we demonstrate that gamma-secretase functions in epithelia as a tumor suppressor in an enzyme activity-dependent manner. Notch signaling is down-regulated and epidermal growth factor receptor (EGFR) is activated in SCC caused by genetic reduction of gamma-secretase. Moreover, the level of EGFR is inversely correlated with the level of gamma-secretase in fibroblasts, suggesting that the up-regulation of EGFR stimulates hyperproliferation in epithelia of mice with genetic reduction of gamma-secretase. Supporting this notion is our finding that the proliferative response of fibroblasts lacking gamma-secretase activity is more sensitive when challenged by either EGF or an inhibitor of EGFR as ompared with wild type cells. Interestingly, the up-regulation of EGFR is independent of Notch signaling, suggesting that the EGFR pathway functions in parallel with Notch in the tumorigenesis of SCC. Collectively, our results establish a novel mechanism linking the EGFR pathway to the tumor suppressor role of gamma-secretase and that mice with genetic reduction of gamma-secretase represent an excellent rodent model for clarifying pathogenesis of SCC and for testing therapeutic strategy to ameliorate this type of human cancer.