Gamma-secretase is an aspartyl protease complex that catalyzes the intramembrane cleavage of a subset of type I transmembrane proteins including the beta-amyloid precursor protein (APP) implicated in Alzheimer's disease. Presenilin (PS), nicastrin (NCT), anterior pharynx defective (APH-1) and presenilin enhancer-2 (PEN-2) constitute the active gamma-secretase complex. PEN-2, the smallest subunit, is required for triggering PS endoproteolysis. Stabilization of the resultant N- and C-terminal fragments, which carry the catalytically active site aspartates, but not endoproteolysis itself, requires the C-terminal domain of PEN-2. To functionally dissect the C-terminal domain we created C-terminal deletion mutants and mutagenized several evolutionary highly conserved residues. The PEN-2 mutants were then probed for functional complementation of a PEN-2 knockdown, which displays deficient PS1 endoproteolysis and impaired NCT maturation. Progressive truncation of the C-terminus caused increasing loss of function. This was also observed for an internal deletion mutant as well as for C-terminally tagged PEN-2 with a twofold elongated C-terminal domain. Interestingly, only simultaneous, but not individual substitution of the highly conserved D90, F94, P97 and G99 residues with alanine interfered with PEN-2 function. All loss of function mutants identified allowed PS1 endoproteolysis, but failed to stably associate with the resultant PS1 fragments, which like the PEN-2 loss of function mutants underwent proteasomal degradation. However, complex formation of the PEN-2 mutants with PS1 fragments could be recovered when proteasomal degradation was blocked. Taken together, our data suggest that the PS-subunit stabilizing function of PEN-2 depends on length and overall sequence of its C-terminal domain.