The gamma-secretase complex cleaves many transmembrane proteins, including amyloid precursor protein, EphB and ErbB tyrosine kinase receptors, Notch1 receptors, and adhesion factors. Presenilin 1, the catalytic subunit of gamma-secretase, associates with the cadherin/catenin cell-cell adhesion/communication system and promotes cadherin processing (Georgakopoulos, A., et al. (1999) Mol. Cell 4, 893-902; Marambaud, P., et al. (2002) EMBO J. 21, 1948-1956), but the mechanism by which gamma-secretase and cadherins associate is unclear. Here we report that p120 catenin (p120ctn), a component of the cadherin-catenin complex, recruits gamma-secretase to cadherins, thus stimulating their processing while inhibiting production of Abeta peptide and the amyloid precursor protein intracellular domain. This function of p120ctn depends on both p120ctn-cadherin and p120ctn-presenilin 1 binding, indicating that p120ctn is the central factor that bridges gamma-secretase and cadherin-catenin complexes. Our data show that p120ctn is a unique positive regulator of the gamma-secretase processing of cadherins and a negative regulator of the amyloid precursor protein processing. Furthermore, our data suggest that specific members of the gamma-secretase complex may be used to recruit different substrates and that distinct PS1 sequences are required for processing of APP and cadherins.