gamma-Secretase is composed of at least four transmembrane proteins, presenilin (PS) 1/2, nicastrin, anterior pharynx-1 (Aph-1) and presenilin enhancer-2 (Pen-2), and cleaves amyloid precursor protein (APP) to produce amyloid beta peptides (Abeta) that is deposited in the brains of Alzheimer disease. However, the mechanism of gamma-secretase-mediated cleavage remains unclear. To examine the enzymatic properties of gamma-secretase, we established an in vitro assay system using Saccharomyces cerevisiae, which does not possess homologs of human PS1/2, nicastrin, Aph-1, or Pen-2. We transformed these subunits and the substrate in pep4Delta cells with vacuole proteases inactivated, and microsome was isolated for in vitro assay. In the assay, Abeta40, Abeta42, and Abeta43 were produced with an optimal pH of approximately 7.0. We also detected Abeta-production by yeast endogenous protease(s), which was abolished by the addition of phosphatidyl choline. This novel system will facilitate the analysis of substrate recognition by gamma-secretase.