TMP21 has been shown to be associated with the γ-secretase complex and can specifically regulate γ-cleavage without affecting ϵ-mediated proteolysis. To explore the basis of this activity, TMP21 modulation of γ-secretase activity was investigated independent of ϵ-cleavage using an amyloid-β precursor proteinϵ (APPϵ) construct which lacks the amyloid intracellular domain domain. The APPϵ construct behaves similarly to the full-length precursor protein with respect to α- and β-cleavages and is able to undergo normal γ-processing. Co-expression of APPϵ and TMP21 resulted in the accumulation of membrane-embedded higher molecular weight Aβ-positive fragments, consistent with an inhibition of γ-secretase cleavage. The APPϵ system was used to examine the functional domains of TMP21 through the investigation of a series of TMP21-p24a chimera proteins. It was found that chimeras containing the transmembrane domain bound to the γ-secretase complex and could decrease γ-secretase proteolytic processing. This was confirmed though investigation of a synthetic peptide corresponding to the TMP21 transmembrane helix. The isolated TMP21 TM peptide but not the homologous p24a domain was able to reduce Aβ production in a dose-dependent fashion. These observations suggest that the TMP21 transmembrane domain promotes its association with the presenilin complex that results in decreased γ-cleavage activity.