The existence of pathogenic mutations in beta-APP and the presenilin genes provides strong support for the hypothesis that Abeta production and deposition contribute to the etiology of Alzheimer's disease (AD). The heterogeneous carboxyl termini of Abeta molecules deposited in the hippocampus, cortex and cerebrovasculature of AD patients are generated by gamma-secretase. The gamma-secretase that generates the termini in vivo is a complex of proteins containing presenilin as an integral component. Drugs that modulate the production of Abeta by inhibiting gamma-secretase could provide an effective therapy for AD, but like most disease targets, the gamma-secretase appears to have more than a single function. The use of potent inhibitors has aided the discovery and characterization of gamma-secretase functions and reinforced the concept that a successful drug must demonstrate selectivity for lowering Abeta without disrupting the function of gamma-secretase targets. The discovery of drugs that can selectively inhibit beta-APP cleavage is an important objective. This review focuses on studies that enhance our understanding of the effects of inhibiting gamma-secretase and provide direction for developing effective and selective gamma-secretase inhibitors as drugs to treat AD.