Mutations in presenilin-1 and presenilin-2 (PS1 and PS2) are the most common cause of familial Alzheimer disease. PS1 and PS2 are the presumptive catalytic components of the multisubunit gamma-secretase complex, which proteolyzes a number of type I transmembrane proteins, including the amyloid precursor protein (APP) and Notch. APP processing by gamma-secretase produces beta-amyloid peptides (Abeta40 and Abeta42) that accumulate in the Alzheimer disease brain. Here we identify a pathogenic L435F mutation in PS1 in two affected siblings with early-onset familial Alzheimer disease characterized by deposition of cerebral cotton wool plaques. The L435F mutation resides in a conserved C-terminal PAL sequence implicated in active site conformation and catalytic activity. The impact of PS1 mutations in and around the PAL motif on gamma-secretase activity was assessed by expression of mutant PS1 in mouse embryo fibroblasts lacking endogenous PS1 and PS2. Surprisingly, the L435F mutation caused a nearly complete loss of gamma-secretase activity, including >90% reductions in the generation of Abeta40, Abeta42, and the APP and Notch intracellular domains. Two nonpathogenic PS1 mutations, P433L and L435R, caused essentially complete loss of gamma-secretase activity, whereas two previously identified pathogenic PS1 mutations, P436Q and P436S, caused partial loss of function with substantial reductions in production of Abeta40, Abeta42, and the APP and Notch intracellular domains. These results argue against overproduction of Abeta42 as an essential property of presenilin proteins bearing pathogenic mutations. Rather, our findings provide support for the hypothesis that pathogenic mutations cause a general loss of presenilin function.