The 19-transmembrane multisubunit γ-secretase complex generates the amyloid β-peptide (Aβ) of Alzheimer's disease (AD) by intramembrane proteolysis of the β-amyloid precursor protein (APP). Despite substantial advances in elucidating how this protein complex functions, the effect of the local membrane lipid microenvironment on γ-secretase cleavage of substrates is still poorly understood. Using detergent-free proteoliposomes to reconstitute purified human γ-secretase, we examined the effects of fatty acyl (FA) chain length, saturation and double-bond isomerization, and membrane lipid polar headgroups on γ-secretase function. We analyzed γ-secretase activity and processivity [i.e., sequential cleavages in the APP transmembrane domain that convert longer Aβ species (e.g., Aβ(46)) into shorter ones (e.g., Aβ(40))] by quantifying the APP intracellular domain (AICD) and various Aβ peptides, including via a bicine/urea gel system that detects multiple Aβ lengths. These assays revealed several trends. (1) Switching from a cis to a trans isomer of a monounsaturated FA chain in phosphatidylcholine (PC) increased γ-activity, did not affect Aβ(42):Aβ(40) ratios, but decreased the ratio of long (≥42) versus short (≤41) Aβ peptides. (2) Increasing the FA carbon chain length (14, 16, 18, and 20) increased γ-activity, reduced longer Aβ species, and reduced the Aβ(42):Aβ(40) ratio. (3) Shifting the position of the double bond in 18:1(Δ9-cis) PC to the Δ6 position substantially reduced activity. (4) Gangliosides increased γ-activity but decreased processivity, thus elevating the Aβ(42):Aβ(40) ratio. (5) Phosphatidylserine decreased γ-activity but increased processivity. (6) Phosphatidylinositol strongly inhibited γ-activity. Overall, our results show that subtle changes in membrane lipid composition can greatly influence γ-secretase activity and processivity, suggesting that relatively small changes in lipid membrane composition may affect the risk of AD at least as much as presenilin or APP mutations do.