The gamma-secretase complex, consisting of presenilins (PS), nicastrin (NCT), APH-1, and PEN-2, catalyzes the intramembranous proteolysis of truncated beta-amyloid precursor protein (APP) and Notch derivatives to generate the APP intracellular domain (AICD) and Notch intracellular domain (NICD), respectively. To examine the intracellular sites in which active gamma-secretase resides, we expressed NCT variants harboring either an endoplasmic reticulum (ER) retention signal (NCT-ER) or a trans-Golgi network (TGN) targeting motif (NCT-TGN) along with PS1, APH-1, and PEN-2 and examined gamma-secretase activity in these settings. In cells expressing NCT-ER and the other components, PS1 fragments hyperaccumulated, but AICD levels were not elevated. On the other hand, upon coexpression of an ER-retained APP variant or a constitutionally active Notch mutant, NDeltaE, we observed enhanced production of AICD or NICD, respectively, in cells expressing NCT-ER. Moreover, we show that membranes from cells expressing NCT-ER, NCT-TGN, or NCT-WT contain identical levels of PS1 derivatives that can be photoaffinity cross-linked to a biotinylated, benzophenone-derivatized gamma-secretase inhibitor. Finally, our cell-free gamma-secretase assays revealed nearly equivalent gamma-secretase activities in cells expressing PS1, APH-1, PEN-2, and either NCT-WT or NCT-ER. Taken together, we interpret these findings as suggesting that active gamma-secretase complex is generated in the early compartments of the secretory pathway but that these complexes are transported to late compartments in which substrates are encountered and subsequently processed within respective transmembrane segments.