Presenilin 1 or presenilin 2, nicastrin, APH-1, and PEN-2 form high molecular weight complexes that play a pivotal role in the cleavage of various Type I transmembrane proteins, including the beta-amyloid precursor protein. The specific function of PEN-2 is unclear. To explore its function and intermolecular interactions, we conducted deletion and mutagenesis studies on a series of conserved residues at the C terminus of PEN-2. These studies suggest that: 1) both the presence and amino acid sequence of the conserved DYLSF domain at the C terminus of PEN-2 (residues 90-94) is critical for binding PEN-2 to other components in the presenilin complex and 2) the overall length of the exposed C terminus is critical for functional gamma-secretase activity.