Amyloid precursor protein (APP) is cleaved and processed sequentially by γ-secretase yielding amyloid β (Aβ) peptides of different lengths. Longer Aβ peptides are associated with the formation of neurotoxic plaques related to Alzheimer's disease. Based on the APP substrate-bound structure of γ-secretase, we investigated the enzyme-substrate interaction using molecular dynamics simulations and generated model structures that represent the sequentially cleaved intermediates during the processing reaction. The simulations indicated an internal docking site providing strong enzyme-substrate packing interaction. In the enzyme-substrate complex, it is located close to the region where the helical conformation of the substrate is interrupted and continues toward the active site in an extended conformation. The internal docking site consists of two non-polar pockets that are preferentially filled by large hydrophobic or aromatic substrate side chains to stabilize binding. Placement of smaller residues such as glycine can trigger a shift in the cleavage pattern during the simulations or results in destabilization of substrate binding. The reduced packing by smaller residues also influences the hydration of the active site and the formation of a catalytically active state. The simulations on processed substrate intermediates and a substrate G33I mutation offer an explanation of the experimentally observed relative increase of short Aβ fragment production for this mutation. In addition, studies on a substrate K28A mutation indicate that the internal docking site opposes the tendency of substrate dissociation due to a hydrophobic mismatch at the membrane boundary caused by K28 during processing and substrate movement toward the enzyme active site. The proposed internal docking site could also be useful for the specific design of new γ-secretase modulators.