Amyloid-beta precursor protein (APP) forms a transcriptionally active complex with the adaptor protein Fe65 and the histone acetyltransferase Tip60, but the mechanism of transcriptional activation that is mediated by APP and Fe65 remains unclear. APP is cleaved by gamma-secretase similar to Notch, whose intracellular domain activates transcription by interacting with nuclear transcription factors. To test whether the APP intracellular domain (AICD) functions analogously, we investigated how APP and Fe65 transactivate a Gal4 fusion protein of Tip60. Consistent with the Notch paradigm, we observe that gamma-cleavage of APP and nuclear translocation of Fe65 are required for transactivation. Surprisingly, however, we find that nuclear translocation of the AICD may be dispensable and that only membrane-tethered AICD (i.e. AICD coupled to a transmembrane region) and not free AICD (i.e. soluble AICD) is a potent transactivator of transcription. Membrane-tethered AICD recruits Fe65 and mediates the activation of bound Fe65 that is then released for nuclear translocation by gamma-cleavage together with the AICD. Our data suggest that transcriptional transactivation by APP and Notch may involve distinct mechanisms; whereas the Notch intracellular domain directly functions in the nucleus, the AICD acts indirectly by activating Fe65.