The present invention provides DNA constructs, genetically engineered host cells, and methods for identifying inhibitors of amyloid precursor protein (APP) processing. The methods provide for the convenient identification, in a single assay, of inhibitors of .beta.-secretase and .gamma.-secretase as well as other forms of APP processing. The methods rely on fusion proteins of APP and transcription factors in which APP processing releases the transcription factors, allowing the transcription factors to activate transcription of a reporter gene. Inhibitors are identified as substances that block or diminish transcription factor release from the fusion protein, thereby causing a diminution of reporter gene readout.