Cerebral deposition of amyloid beta protein (A beta) is an early and critical feature of Alzheimer's disease. Here we analyze the substrate requirements of proteases ("beta-secretases") that cleave the beta-amyloid precursor protein (beta APP) at the N-terminus of A beta (Asp-597 of beta APP695) in intact human cells. The cleavage requires a membrane-bound substrate but tolerates shifts in the distance of the hydrolyzed bond from the membrane. The major protease has a minimum recognition region of Val-594 to Ala-598; most substitutions in this sequence strongly decrease or eliminate A beta production. Only the Swedish familial Alzheimer's disease mutation (K595N/M596L) strongly increases A beta production. Moreover, in this mutant but not in the wild type, the entire cytoplasmic tail with its reinternalization signals can be deleted without affecting A beta N-terminal cleavage, consistent with the concept that cleavage of this mutant occurs in a different cellular compartment than that of wild-type molecules. Our results have important implications for current intensive approaches to develop assays for and identify enzymes with beta-secretase activity.