The amyloid β‐protein (Aβ) deposited in Alzheimer's disease (AD) is a normally secreted proteolytic product of the amyloid β‐protein precursor (APP). Generation of Aβ from the APP requires two sequential proteolytic events: an initial β‐secretase cleavage at the amino terminus of the Aβ sequence followed by γ‐secretase cleavage at the carboxyl terminus of Aβ. We describe the development of a robust in vitro assay for γ‐secretase cleavage by showing de novo Aβ production in vitro and establish that this assay monitors authentic gamma‐secretase activity by documenting the production of a cognate γ‐CTF, confirming the size of the Aβ produced by mass spectrometry, and inhibiting cleavage in this system with multiple inhibitors that alter γ‐secretase activity in living cells. Using this assay, we demonstrate that the γ‐secretase activity 1) is tightly associated with the membrane, 2) can be solubilized, 3) has a pH optimum of 6.8 but is active from pH 6.0 to pH >8.4, and 4) ascertain that activities of the γ‐40 and γ‐42 are indeed pharmacologically distinct. These studies should facilitate the purification of the protease or proteases that are responsible for this unusual activity, which is a major therapeutic target for the treatment of AD.