Presenilin (PS)‐dependent γ‐secretase cleavage is the final proteolytic step in generating amyloid β protein (Aβ), a key peptide involved in the pathogenesis of Alzheimer's disease. PS undergoes endoproteolysis by an unidentified ‘presenilinase’ to generate the functional N‐terminal and C‐terminal fragment heterodimers (NTF/CTF) that may harbor the γ‐secretase active site. To better understand the relationship between presenilinase and γ‐secretase, we characterized the biochemical properties of presenilinase and compared them with those of γ‐secretase. Similar to γ‐secretase, presenilinase was most active at acidic pH 6.3. Aspartyl protease inhibitor pepstatin A blocked presenilinase activity with an IC₅₀ of ∼ 1 µm. Difluoroketone aspartyl protease transition state analogue MW167 was relatively selective for presenilinase (IC₅₀ < 1 µm) over γ‐secretase (IC₅₀−16 µm). Importantly, removing the transition state mimicking moiety simultaneously abolished both presenilinase and γ‐secretase inhibition, suggesting that presenilinase, like γ‐secretase, is an aspartyl protease. Interestingly, several of the most potent γ‐secretase inhibitors (IC₅₀ = 0.3 or 20 nm) failed to block presenilinase activity. Although de novo generation of PS1 fragments coincided with production of Aβin vitro, blocking presenilinase activity without reducing pre‐existing fragment levels permitted normal de novo generation of Aβ and amyloid intracellular domain. Therefore, presenilinase has characteristics of an aspartyl protease, but this activity is distinct from γ‐secretase.