Presenilin mutations that alter γ-secretase activity cause familial Alzheimer's disease (AD), whereas ApoE4, an apolipoprotein for cholesterol transport, predisposes to sporadic AD. Both sporadic and familial AD feature synaptic dysfunction. Whether γ-secretase is involved in cholesterol metabolism and whether such involvement impacts synaptic function remains unknown. Here, we show that in human neurons, chronic pharmacological or genetic suppression of γ-secretase increases synapse numbers but decreases synaptic transmission by lowering the presynaptic release probability without altering dendritic or axonal arborizations. In search of a mechanism underlying these synaptic impairments, we discovered that chronic γ-secretase suppression robustly decreases cholesterol levels in neurons but not in glia, which in turn stimulates neuron-specific cholesterol-synthesis gene expression. Suppression of cholesterol levels by HMG-CoA reductase inhibitors (statins) impaired synaptic function similar to γ-secretase inhibition. Thus, γ-secretase enables synaptic function by maintaining cholesterol levels, whereas the chronic suppression of γ-secretase impairs synapses by lowering cholesterol levels.