Amyloid beta-protein (Abeta), the major component of cerebral plaques associated with Alzheimer disease, is derived from amyloid beta-protein precursor (APP) through sequential proteolytic cleavage involving beta- and gamma-secretase. The intramembrane cleavage of APP by gamma-secretase occurs at two major sites, gamma and epsilon, although the temporal and/or mechanistic relationships between these cleavages remain unknown. In our attempt to address this issue, we uncovered an important regulatory role for the APP luminal juxtamembrane domain. We demonstrated in cell-based assays that domain replacements in this region can greatly reduce secreted Abeta resulting from gamma-cleavage without affecting the epsilon-cleavage product. This Abeta reduction is likely due to impaired proteolysis at the gamma-cleavage site. Further analyses with site-directed mutagenesis identified two juxtamembrane residues, Lys-28 and Ser-26 (Abeta numbering), as the critical determinants for efficient intramembrane proteolysis at the gamma-site. Consistent with the growing evidence that epsilon-cleavage of APP precedes gamma-processing, longer Abeta species derived from the gamma-cleavage-deficient substrates were detected intracellularly. These results indicate that the luminal juxtamembrane region of APP is an important regulatory domain that modulates gamma-secretase-dependent intramembrane proteolysis, particularly in differentiating gamma- and epsilon-cleavages.