Proteases not only play a fundamental role in numerous physiological processes, but are also involved in several human diseases including Alzheimer's disease (AD). A key protease implicated in AD is the so far unidentified gamma-secretase, which cleaves the membrane-bound beta-amyloid precursor protein (betaAPP) at the C-terminus of its amyloid domain within the membrane to release the neurotoxic amyloid beta-peptide. In order to allow the isolation of proteases, which specifically cleave membrane-bound substrates within or in the vicinity of a transmembrane domain, we developed a reporter gene assay in Saccharomyces cerevisiae. This assay may allow the identification of genes encoding target proteases that specifically cleave membrane bound substrates by transforming expression libraries.