Signal peptide peptidase (SPP) is an intramembrane-cleaving protease identified by its cleavage of several type II membrane signal peptides after signal peptidase cleavage. Here we describe a novel, quantitative, cell-based SPP reporter assay. This assay utilizes a substrate consisting of the NH2 terminus of the ATF6 transcription factor fused to a transmembrane domain susceptible to SPP cleavage in vitro. In cells, cleavage of the substrate releases ATF6 from the membrane. This cleavage can be monitored by detection of an epitope that is unmasked in the cleaved substrate or by luciferase activity induced by the cleaved ATF6 substrate binding to and activating an ATF6 luciferase reporter construct. Using this assay we show that (i) SPP is the first aspartyl intramembrane-cleaving protease whose activity increases proportionally to its overexpression and (ii) selectivity of various SPP and gamma-secretase inhibitors can be rapidly evaluated. Because this assay was designed based on data suggesting that SPP has an orientation distinct from presenilin and cleaves type II membrane proteins, we determined whether the segment of SPP located between the two presumptive catalytic aspartates was in the lumen or cytoplasm. Using site-directed mutagenesis to insert an N-linked glycosylation site we show that a portion of this region is present in the lumen. These data provide strong evidence that although the SPP and presenilin active sites have some similarities, their presumptive catalytic domains are inverted. This assay should prove useful for additional functional studies of SPP as well as evaluation of SPP and gamma-secretase inhibitors.