γ-Secretase inhibitors (GSIs) are drugs used in research to inhibit production of Aβ and in clinical trials to treat Alzheimer's disease (AD). They inhibit proteolytic activities of γ-secretase noncompetitively by unknown mechanisms. Here, we used cortical neuronal cultures expressing endogenous levels of enzymes and substrates to study the effects of GSIs on the structure and function of γ-secretase. We show that GSIs stabilize the interactions between the C-terminal fragment of presenilin (PS-CTF), the central component of the γ-secretase complex, and its partners the APH-1/nicastrin and PS1-NTF/PEN-2 subcomplexes. This stabilization dose-dependently correlates with inhibition of N-cadherin cleavage, a process limited by enzyme availability. In contrast, production of amyloid precursor protein (APP) intracellular domain (AICD) is insensitive to low concentrations of GSIs and is limited by substrate availability. Interestingly, APP is processed by both PS1- and PS2-containing γ-secretase complexes, while N-cadherin and ephrinB1 are processed only by PS1-containing complexes. Paradoxically, low concentrations of GSIs specifically increased the levels of Aβ without affecting its catabolism, indicating increased Aβ production. Our data reveal a mechanism of γ-secretase inhibition by GSIs and provide evidence that distinct γ-secretase complexes process specific substrates. Furthermore, our observations have implications for GSIs as therapeutics because processing of functionally important substrates may be inhibited at lower concentrations than Aβ.