Presenilins (PSs) are catalytic components of the γ-secretase complex that produces Aβ peptides. Substrates of γ-secretase are membrane-bound protein fragments deriving from the cleavage of extracellular sequence of cell surface proteins. APP-derived γ-secretase substrates are cleaved at gamma (γ) sites to produce Aβ while cleavage at the epsilon (ε) site produces AICD proposed to function in transcription. In addition to APP, γ-secretase promotes the ε-cleavage of a large number of cell surface proteins producing cytosolic peptides shown to function in cell signaling. A common hypothesis suggests that Alzheimer's disease (AD) is caused by Aβ peptides or their products. Treatment of patients with inhibitors of Aβ production however, showed no therapeutic benefits while inducing cytotoxicity. Similarly, treatments with anti-Aβ antibodies yielded disappointing results. Importantly, recent evidence shows that PS familial AD (FAD) mutations cause a loss of γ-secretase cleavage activity at ε site of substrates thus inhibiting production of biologically important cell signaling peptides while promoting accumulation of membrane-bound cytotoxic substrates. These data support a hypothesis that FAD mutations may increase neurotoxicity by inhibiting the γ-secretase-catalyzed ε cleavage of substrates thus interfering with cell signaling while also promoting accumulation of cytotoxic peptides. Similar mechanisms may explain γ-secretase inhibitor-associated toxicities observed in clinical trials. Here we discuss evidence that FAD neurodegeneration may be caused by loss of γ-secretase cleavage function at ε sites of substrates.