The m-AAA protease is a conserved hetero-oligomeric complex in the inner membrane of mitochondria. Recent evidence suggests a compartmentalization of the contiguous mitochondrial inner membrane into an inner boundary membrane (IBM) and a cristae membrane (CM). However, little is known about the functional differences of these subdomains. We have analyzed the localizations of the m-AAA protease and its substrate cytochrome c peroxidase (Ccp1) within yeast mitochondria using live cell fluorescence microscopy and quantitative immunoelectron microscopy. We find that the m-AAA protease is preferentially localized in the IBM. Likewise, the membrane-anchored precursor form of Ccp1 accumulates in the IBM of mitochondria lacking a functional m-AAA protease. Only upon proteolytic cleavage the mature form mCcp1 moves into the cristae space. These findings suggest that protein quality control and proteolytic activation exerted by the m-AAA protease take place preferentially in the IBM pointing to significant functional differences between the IBM and the CM.