γ-Secretase is a multisubunit complex that catalyzes intramembranous cleavage of transmembrane proteins. The lipid environment forms membrane microdomains that serve as spatio-temporal platforms for proteins to function properly. Despite substantial advances in the regulation of γ-secretase, the effect of the local membrane lipid microenvironment on the regulation of γ-secretase is poorly understood. Here, we characterized and quantified the partitioning of γ-secretase and its substrates, the amyloid precursor protein (APP) and Notch, into lipid bilayers using solid-supported model membranes. Notch substrate is preferentially localized in the liquid-disordered (Ld) lipid domains, whereas APP and γ-secretase partition as single or higher complex in both phases but highly favor the ordered phase, especially after recruiting lipids from the ordered phase, indicating that the activity and specificity of γ-secretase against these two substrates are modulated by membrane lateral organization. Moreover, time-elapse measurements reveal that γ-secretase can recruit specific membrane components from the cholesterol-rich Lo phase and thus creates a favorable lipid environment for substrate recognition and therefore activity. This work offers insight into how γ-secretase and lipid modulate each other and control its activity and specificity.