Mutant presenilins (PS) contribute to the pathogenesis of familial Alzheimer's disease (FAD) by enhancing the production of Abeta42 from beta-amyloid precursor protein. Presenilins are endoproteolytically processed to N-terminal and C-terminal fragments, which together form a stable 1:1 complex. We have mapped the cleavage site in the PS2 protein by direct sequencing of its C-terminal fragment isolated from mouse liver. Three different N-terminal residues were identified starting at Val-299, Thr-301, and Leu-307 that correspond closely to the previously described N termini of the C-terminal fragment of human PS1. Mutational analysis of the PS2 cleavage site indicates that the principal endoproteolytic cleavage occurs at residues Met-298/Val-299 and that the N terminus is subsequently modified by secondary proteolytic cleavages. We have generated cleavage defective PS2 constructs, which accumulate exclusively as full-length polypeptides in transfected Neuro2a cells. Functional analysis of such cleavage defective PS2 carrying the FAD mutation Asn-141 --> Ile showed that its Abeta42 producing activity was strongly reduced compared with cleavage-competent FAD PS2. In contrast, cleavage defective PS2 was active in rescuing the egg-laying defect of a sel-12 mutant in Caenorhabditis elegans. We conclude that PS2 endoproteolytic cleavage is not an absolute requirement for its activities but may rather selectively enhance or stabilize its functions.