TMP21 has been shown to be associated with the gamma-secretase complex and can specifically regulate gamma-cleavage without affecting epsilon-mediated proteolysis. To explore the basis of this activity, TMP21 modulation of gamma-secretase activity was investigated independent of epsilon-cleavage using an amyloid-beta precursor proteinepsilon (APPepsilon) construct which lacks the amyloid intracellular domain domain. The APPepsilon construct behaves similarly to the full-length precursor protein with respect to alpha- and beta-cleavages and is able to undergo normal gamma-processing. Co-expression of APPepsilon and TMP21 resulted in the accumulation of membrane-embedded higher molecular weight Abeta-positive fragments, consistent with an inhibition of gamma-secretase cleavage. The APPepsilon system was used to examine the functional domains of TMP21 through the investigation of a series of TMP21-p24a chimera proteins. It was found that chimeras containing the transmembrane domain bound to the gamma-secretase complex and could decrease gamma-secretase proteolytic processing. This was confirmed though investigation of a synthetic peptide corresponding to the TMP21 transmembrane helix. The isolated TMP21 TM peptide but not the homologous p24a domain was able to reduce Abeta production in a dose-dependent fashion. These observations suggest that the TMP21 transmembrane domain promotes its association with the presenilin complex that results in decreased gamma-cleavage activity.