Cleavage of the β-secretase processed β-amyloid precursor protein by γ-secretase leads to the extracellular release of Aβ42, the more amyloidogenic form of the β-amyloid peptide, which subsequently forms the amyloid-plaques diagnostic of Alzheimer's disease. Mutations in β-amyloid precursor protein (APP), presenilin-1 and presenilin-2 associated with familial Alzheimer's disease (FAD) increase release of Aβ42, suggesting that FAD may directly result from increased γ-secretase activity. Here, we show that familial Alzheimer's disease mutations clustered near the sites of γ-secretase cleavage actually decrease γ-secretase-mediated release of the intracellular fragment of APP (CTFγ). Concordantly, presenilin-1 mutations that result in Alzheimer's disease also decrease the release of CTFγ. Mutagenesis of the epsilon cleavage site in APP mimicked the effects of the FAD mutations, both decreasing CTFγ release and increasing Aβ42 production, suggesting that perturbation of this site may account for the observed decrement in γ-secretase-mediated proteolysis of APP. As CTFγ has been implicated in transcriptional activation, these data indicate that decreased signaling and transcriptional regulation resulting from FAD mutations in β-amyloid precursor protein and presenilin-1 may contribute to the pathology of Alzheimer's disease.