Maturation of gamma-secretase requires an endoproteolytic cleavage in presenilin-1 (PS1) within a peptide loop encoded by exon 9 of the corresponding gene. Deletion of the loop has been demonstrated to cause familial Alzheimer's disease. A synthetic peptide corresponding to the loop sequence was found to inhibit gamma-secretase in a cell-free enzymatic assay with an IC(50) of 2.1 microM, a value similar to the K(m) (3.5 microM) for the substrate C100. Truncation at either end, single amino acid substitutions at certain residues, sequence reversal, or randomization reduced its potency. Similar results were also observed in a cell-based assay using HEK293 cells expressing APP. In contrast to small-molecule gamma-secretase inhibitors, kinetic inhibition studies demonstrated competitive inhibition of gamma-secretase by the exon 9 peptide. Consistent with this finding, inhibitor cross-competition kinetics indicated noncompetitive binding between the exon 9 peptide and L685458, a transition-state analogue presumably binding at the catalytic site, and ligand competition binding experiments revealed no competition between L685458 and the exon 9 peptide. These data are consistent with the proposed gamma-secretase mechanism involving separate substrate-binding and catalytic sites and binding of the exon 9 peptide at the substrate-binding site, but not the catalytic site of gamma-secretase. NMR analyses demonstrated the presence of a loop structure with a beta-turn in the middle of the exon 9 peptide and a loose alpha-helical conformation for the rest of the peptide. Such a structure supports the hypothesis that this exon 9 peptide can adopt a distinct conformation, one that is compact enough to occupy the putative substrate-binding site without necessarily interfering with binding of small molecule inhibitors at other sites on gamma-secretase. We hypothesize that gamma-secretase cleavage activation may be a result of a cleavage-induced conformational change that relieves the inhibitory effect of the intact exon 9 loop occupying the substrate-binding site on the immature enzyme. It is possible that the DeltaE9 mutation causes Alzheimer's disease because cleavage activation of gamma-secretase is no longer necessary, alleviating constraints on Abeta formation.