Neurotrophins are trophic factors that regulate important neuronal functions. They bind two unrelated receptors, the Trk family of receptor-tyrosine kinases and the p75 neurotrophin receptor (p75). p75 was recently identified as a new substrate for gamma-secretase-mediated intramembrane proteolysis, generating a p75-derived intracellular domain (p75-ICD) with signaling capabilities. Using PC12 cells as a model, we studied how neurotrophins activate p75 processing and where these events occur in the cell. We demonstrate that activation of the TrkA receptor upon binding of nerve growth factor (NGF) regulates the metalloprotease-mediated shedding of p75 leaving a membrane-bound p75 C-terminal fragment (p75-CTF). Using subcellular fractionation to isolate a highly purified endosomal fraction, we demonstrate that p75-CTF ends up in endosomes where gamma-secretase-mediated p75-CTF cleavage occurs, resulting in the release of a p75-ICD. Moreover, we show similar structural requirements for gamma-secretase processing of p75 and amyloid precursor protein-derived CTFs. Thus, NGF-induced endocytosis regulates both signaling and proteolytic processing of p75.