Known γ-secretase inhibitors or modulators display an undesirable pharmacokinetic profile and toxicity and have therefore not been successful in clinical trials for Alzheimer’s disease (AD). So far, no compounds from natural products have been identified as direct inhibitors of γ-secretase. To search for bioactive molecules that can reduce the amount of amyloid-beta peptides (Aβ) and that have better pharmacokinetics and an improved safety profile, we completed a screen of ~400 natural products by using cell-based and cell-free γ-secretase activity assays. We identified dihydroergocristine (DHEC), a component of an FDA- (Food and Drug Administration)-approved drug, to be a direct inhibitor of γ-secretase. Micromolar concentrations of DHEC substantially reduced Aβ levels in different cell types, including a cell line derived from an AD patient. Structure-activity relationship studies implied that the key moiety for inhibiting γ-secretase is the cyclized tripeptide moiety of DHEC. A Surface Plasmon Resonance assay showed that DHEC binds directly to γ-secretase and Nicastrin, with equilibrium dissociation constants (Kd) of 25.7 nM and 9.8 μM, respectively. This study offers DHEC not only as a new chemical moiety for selectively modulating the activity of γ-secretase but also a candidate for drug repositioning in Alzheimer’s disease.