Proteases that reside in cellular membranes apparently wield water to hydrolyze the peptide bonds of substrates despite their water-excluding environment. Although these intramembrane proteases bear little or no sequence resemblance to classical water-soluble proteases, they have ostensibly converged on similar hydrolytic mechanisms. Identification of essential amino acid residues of these proteases suggests that they use residue combinations for catalysis in the same way as their soluble cousins. In contrast to classical proteases, however, the catalytic residues of intramembrane proteases lie within predicted hydrophobic transmembrane domains. Elucidating the biological functions of intramembrane proteases, identifying their substrates, and understanding how they hydrolyze peptide bonds within membranes will shed light on the ways these proteases regulate crucial biological processes and contribute to disease.