Processing of the amyloid precursor protein (APP) by β- and γ-secretases generates pathogenic β-amyloid (Aβ) peptides associated with Alzheimer disease (AD), whereas cleavage of APP by α-secretases precludes Aβ formation. Little is known about the role of α-secretase cleavage in γ-secretase regulation. Here, we show that α-secretase-cleaved APP C-terminal product (αCTF) functions as an inhibitor of γ-secretase. We demonstrate that the substrate inhibitory domain (ASID) within αCTF, which is bisected by the α-secretase cleavage site, contributes to this negative regulation because deleting or masking this domain turns αCTF into a better substrate for γ-secretase. Moreover, α-secretase cleavage can potentiate the inhibitory effect of ASID. Inhibition of γ-secretase activity by αCTF is observed in both in vitro and cellular systems. This work reveals an unforeseen role for α-secretase in generating an endogenous γ-secretase inhibitor that down-regulates the production of Aβ. Deregulation of this feedback mechanism may contribute to the pathogenesis of AD.