Increased vascular permeability is an inciting event in many vascular complications including diabetic retinopathy. We have previously reported that pigment epithelium-derived factor (PEDF) is able to inhibit vascular endothelial growth factor (VEGF)-induced angiogenesis through a novel γ-secretase-dependent pathway. In this study, we asked whether inhibition of VEGF-induced permeability by PEDF is also γ-secretase-mediated and to dissect the potential mechanisms involved. Vascular permeability was assessed in vitro by measuring transendothelial resistance and paracellular permeability to dextran and in vivo by following leakage of intravenous FITC-labelled albumin into the retina in the presence or absence of VEGF and PEDF in varying combinations. Experiments were undertaken in the presence or absence of a γ-secretase inhibitor. To assess junctional integrity immunohistochemistry for the adherens junction (AJ) proteins, VE-cadherin and β-catenin, and the tight junction (TJ) protein, claudin-5 was undertaken using cultured cells and flat mount retinas. Protein expression and the association between AJ proteins, VEGF receptors (VEGFRs) and γ-secretase constituents were determined by immunoprecipitation and Western Blot analysis. In selected experiments the effect of hypoxia on junctional integrity was also assessed. PEDF inhibition of VEGF-induced permeability, both in cultured microvascular endothelial cell monolayers and in vivo in the mouse retinal vasculature, is mediated by γ-secretase. PEDF acted by a) preventing dissociation of AJ and TJ proteins and b) regulating both the association of VEGF receptors with AJ proteins and the subsequent phosphorylation of the AJ proteins, VE-cadherin and β-catenin. Association of γ-secretase with AJ proteins appears to be critical in the regulation of vascular permeability. Although hypoxia increased VEGFR expression there was a significant dissociation of VEGFR from AJ proteins. In conclusion, PEDF regulates VEGF-induced vascular permeability via a novel γ-secretase dependent pathway and targeting downstream effectors of PEDF action may represent a promising therapeutic strategy for preventing or ameliorating increased vascular permeability.