The membrane protease γ-secretase cleaves the C99 fragment of the amyloid precursor protein, thus producing the Aβ peptides central to Alzheimer's disease. Cryo-electron microscopy has provided the topology but misses the membrane and loop parts that contribute to substrate binding. We report here an essentially complete atomic model of C99 within wild-type γ-secretase that respects all the experimental constraints and additionally describes loop, helix, and C99 substrate dynamics in a realistic all-atom membrane. Our model represents the matured auto-cleaved state required for catalysis. From two independent 500-ns molecular dynamic simulations, we identify two conformation states of C99 in equilibrium, a compact and a loose state. Our simulations provide a basis for C99 processing and Aβ formation and explain the production of longer and shorter Aβ, as the compact state retains C99 for longer and thus probably trims to shorter Aβ peptides. We expect pathogenic presenilin mutations to stabilize the loose over the compact state. The simulations detail the role of the Lys53–Lys54–Lys55 anchor for C99 binding, a loss of helicity of bound C99, and positioning of Thr48 and Leu49 leading to alternative trimming pathways on opposite sides of the C99 helix in three amino acid steps. The C99 binding topology resembles that of C83-bound γ-secretase without membrane but lacks a presenilin 1-C99 β-sheet, which could be induced by C83's stronger binding. The loose state should be selectively disfavored by γ-secretase modulators to increase C99 trimming and reduce the formation of longer Aβ, a strategy that is currently much explored but has lacked a structural basis.