The intramembrane protease γ-secretase has broad physiological functions, but also contributes to Notch-dependent tumors and Alzheimer's disease. While γ-secretase cleaves numerous membrane proteins, only few nonsubstrates are known. Thus, a fundamental open question is how γ-secretase distinguishes substrates from nonsubstrates and whether sequence-based features or post-translational modifications of membrane proteins contribute to substrate recognition. Using mass spectrometry-based proteomics, we identified several type I membrane proteins with short ectodomains that were inefficiently or not cleaved by γ-secretase, including 'pituitary tumor-transforming gene 1-interacting protein' (PTTG1IP). To analyze the mechanism preventing cleavage of these putative nonsubstrates, we used the validated substrate FN14 as a backbone and replaced its transmembrane domain (TMD), where γ-cleavage occurs, with the one of nonsubstrates. Surprisingly, some nonsubstrate TMDs were efficiently cleaved in the FN14 backbone, demonstrating that a cleavable TMD is necessary, but not sufficient for cleavage by γ-secretase. Cleavage efficiencies varied by up to 200-fold. Other TMDs, including that of PTTG1IP, were still barely cleaved within the FN14 backbone. Pharmacological and mutational experiments revealed that the PTTG1IP TMD is palmitoylated, which prevented cleavage by γ-secretase. We conclude that the TMD sequence of a membrane protein and its palmitoylation can be key factors determining substrate recognition and cleavage efficiency by γ-secretase.