The formation of insoluble cross beta-sheet amyloid is pathologically associated with disorders such as Alzheimer, Parkinson, and Huntington diseases. One exception is the nonpathological amyloid derived from the protein Pmel17 within melanosomes to generate melanin pigment. Here we show that the formation of insoluble MalphaC intracellular fragments of Pmel17, which are the direct precursors to Pmel17 amyloid, depends on a novel juxtamembrane cleavage at amino acid position 583 between the furin-like proprotein convertase cleavage site and the transmembrane domain. The resulting Pmel17 C-terminal fragment is then processed by the gamma-secretase complex to release a short-lived intracellular domain fragment. Thus, by analogy to the Notch receptor, we designate this cleavage the S2 cleavage site, whereas gamma-secretase mediates proteolysis at the intramembrane S3 site. Substitutions or deletions at this S2 cleavage site, the use of the metalloproteinase inhibitor TAPI-2, as well as small interfering RNA-mediated knock-down of the metalloproteinases ADAM10 and 17 reduced the formation of insoluble Pmel17 fragments. These results demonstrate that the release of the Pmel17 ectodomain, which is critical for melanin amyloidogenesis, is initiated by S2 cleavage at a juxtamembrane position.