Innate immunity is associated with Alzheimer’s disease1, but the influence of immune activation on the production of amyloid-β is unknown2,3. Here we identify interferon-induced transmembrane protein 3 (IFITM3) as a γ-secretase modulatory protein, and establish a mechanism by which inflammation affects the generation of amyloid-β. Inflammatory cytokines induce the expression of IFITM3 in neurons and astrocytes, which binds to γ-secretase and upregulates its activity, thereby increasing the production of amyloid-β. The expression of IFITM3 is increased with ageing and in mouse models that express familial Alzheimer’s disease genes. Furthermore, knockout of IFITM3 reduces γ-secretase activity and the formation of amyloid plaques in a transgenic mouse model (5xFAD) of early amyloid deposition. IFITM3 protein is upregulated in tissue samples from a subset of patients with late-onset Alzheimer’s disease that exhibit higher γ-secretase activity. The amount of IFITM3 in the γ-secretase complex has a strong and positive correlation with γ-secretase activity in samples from patients with late-onset Alzheimer’s disease. These findings reveal a mechanism in which γ-secretase is modulated by neuroinflammation via IFITM3 and the risk of Alzheimer’s disease is thereby increased.