Intracellular amyloid-β peptide (Aβ) has been implicated in the pathogenesis of Alzheimer's disease (AD). Mitochondria were found to be the target both for amyloid precursor protein (APP) that accumulates in the mitochondrial import channels and for Aβ that interacts with several proteins inside mitochondria and leads to mitochondrial dysfunction. Here, we have studied the role of mitochondrial γ-secretase in processing different substrates. We found that a significant proportion of APP is associated with mitochondria in cultured cells and that γ-secretase cleaves the shedded C-terminal part of APP identified as C83 associated with the outer membrane of mitochondria (OMM). Moreover, we have established the topology of the C83 in the OMM and found the APP intracellular domain (AICD) to be located inside mitochondria. Our data show for the first time that APP is a substrate for the mitochondrial γ-secretase and that AICD is produced inside mitochondria. Thus, we provide a mechanistic view of the mitochondria-associated APP metabolism where AICD, P3 peptide and potentially Aβ are produced locally and may contribute to mitochondrial dysfunction in AD.