Regulated intramembrane proteolysis of the amyloid precursor protein (APP) and its homologs, the APP like proteins APLP1 and APLP2, is typically a two-step process, which is initiated by ectodomain-shedding of the substrates by α- or β-secretases. Growing evidence, however, indicates that the cleavage process for APLP1 is different than for APP. Here, we describe that full-length APLP1, but not APP or APLP2, is uniquely cleaved by γ-secretase without previous ectodomain shedding. The new fragment, termed sAPLP1γ, was exclusively associated with APLP1, not APP, APLP2. We provide an exact molecular analysis showing that sAPLP1γ was uniquely generated by γ-secretase from full-length APLP1. Mass spectrometry analysis showed that the sAPLP1γ fragment and the longest Aβ-like peptide share the C-terminus. This novel mechanism of γ-secretase action is consistent with an ϵ-cut based upon the nature of the reaction in APP. We further demonstrate that the APLP1 transmembrane sequence is the critical determinant for γ-shedding and release of full-length APLP1. Moreover, the APLP1 TMS is sufficient to convert larger type-I membrane proteins like APP into direct γ-secretase substrates. Taken together, the direct cleavage of APLP1 is a novel feature of the γ-secretase prompting a re-thinking of γ-secretase activity modulation as a therapeutic strategy for Alzheimer disease.