There is provided a series of novel substituted gamma-lactams of Formula (I) ##STR00001## or a stereoisomer; or a pharmaceutically acceptable salt thereof, wherein R.sub.1, R.sub.2, R.sub.4, R.sub.5 and R.sub.6 as defined herein, their pharmaceutical compositions and methods of use. These novel compounds inhibit the processing of amyloid precursor protein (APP) by .beta.-secretase and, more specifically, inhibit the production of A.beta.-peptide. The present disclosure is directed to compounds useful in the treatment of neurological disorders related to .beta.-amyloid production, such as Alzheimer's disease and other conditions affected by anti-amyloid activity.