Comprehensive evidence supports that oligomerization and accumulation of amyloidogenic Aβ42 peptides in brain is crucial in the pathogenesis of both familial and sporadic forms of Alzheimer's disease. Imaging studies indicate that the buildup of Aβ begins many years before the onset of clinical symptoms, and that subsequent neurodegeneration and cognitive decline may proceed independently of Aβ. This implies the necessity for early intervention in cognitively normal individuals with therapeutic strategies that prioritize safety. The aspartyl protease γ-secretase catalyses the last step in the cellular generation of Aβ42 peptides, and is a principal target for anti-amyloidogenic intervention strategies. Due to the essential role of γ-secretase in the NOTCH signaling pathway, overt mechanism-based toxicity has been observed with the first generation of γ-secretase inhibitors, and safety of this approach has been questioned. However, two new classes of small molecules, γ-secretase modulators (GSMs) and NOTCH-sparing γ-secretase inhibitors, have revitalized γ-secretase as a drug target in AD. GSMs are small molecules that cause a product shift from Aβ42 towards shorter and less toxic Ab peptides. Importantly, GSMs spare other physiologically important substrates of the γ-secretase complex like NOTCH. Recently, GSMs with nanomolar potency and favorable in vivo properties have been described. In this review, we summarize the knowledge about the unusual proteolytic activity of γ-secretase, and the chemical biology, molecular mechanisms and clinical perspective of compounds that target the γ-secretase complex, with a particular focus on GSMs.