A functional assay for proteolytic processing of the amyloid precursor protein (APP) was set up in yeast. This consisted of a membrane-bound chimeric protein containing the beta-secretase cleaved C-terminal fragment of APP fused to the Ga14 transcription factor. Using this chimera in a GAL-reporter yeast strain, an expression library of human cDNAs was screened for clones that could activate the GAL-reporter genes by proteolytic processing of the membrane-bound APP-Gal4. Two human proteases, caspase-3 and caspase-8, were identified and confirmed to act by a mechanism that involved proteolysis at the site in the APP-Gal4 chimera that corresponded to the natural caspase cleavage site in APP, thus linking a readily scorable phenotype to proteolytic processing of APP. The activation of caspase-3 involved a mechanism that was independent of aspartic acid residue 175 at the cleavage site normally required for processing of caspase-3.