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Prenatal exposure to mercury causes neurodevelopmental disorders and neurological pathologies in infants, such as microcephaly and mental retardation. Despite critical importance, the molecular interactions leading to mercury toxicity are yet to be elucidated. We first used a cell-free assay to investigate mercury effects on purified γ-secretase activity. Next, we treated adult Drosophila melanogaster with mercury and collected control and mercury-treated embryos, which were subjected to mild hypotonic protein extraction, or immunostained to reveal nervous system morphology. Embryos left to develop into adults were examined for wing phenotypes. Relative to control metals, we found that mercury strongly inhibits in vitro γ-secretase processing of both amyloid-β precursor protein (APP) and Notch. Mercury inhibited APP and Notch cleavage in a dose-dependent manner, with IC(50) values of 50-125 nM, and is therefore comparable in potency to benchmark γ-secretase inhibitors. Immunoblot analysis of embryonic protein extracts showed that mercury inhibits Notch cleavage by γ-secretase in vivo. This is accompanied by severe neurodevelopmental abnormalities in embryos and adult wing-notching phenotypes. Our findings provide first evidence that mercury is a direct and potent γ-secretase inhibitor and suggest that inhibition of γ-secretase and disruption of the Notch developmental pathway potentially contribute to mercury-induced toxicity in the nervous system.