The cellular prion protein (PrP^C) is a ubiquitously expressed protein of currently unresolved but potentially diverse function. Of putative relevance to normal biological activity, PrP^C is recognized to undergo both α- and β-endoproteolysis, producing the cleavage fragment pairs N1/C1 and N2/C2, respectively. Experimental evidence suggests the likelihood that these processing events serve differing cellular needs. Through the engineering of a C-terminal c-myc tag onto murine PrP^C, as well as the selective use of a far-C-terminal anti-PrP antibody, we have identified a new PrP^C fragment, nominally ‘C3’, and elaborating existing nomenclature, ‘γ-cleavage’ as the responsible proteolysis. Our studies indicate that this novel γ-cleavage event can occur during transit through the secretory pathway after exiting the endoplasmic reticulum, and after PrP^C has reached the cell surface, by a matrix metalloprotease. We found that C3 is GPI-anchored like other C-terminal and full length PrP^C species, though it does not localize primarily at the cell surface, and is preferentially cleaved from an unglycosylated substrate. Importantly, we observed that C3 exists in diverse cell types as well as mouse and human brain tissue, and of possible pathogenic significance, γ-cleavage may increase in human prion diseases. Given the likely relevance of PrP^C processing to both its normal function, and susceptibility to prion disease, the potential importance of this previously underappreciated and overlooked cleavage event warrants further consideration.