The transmembrane glycoprotein Nicastrin was identified in a complex with the multipass membrane protein Presenilin. Presenilin mediates transmembrane cleavage of single-pass transmembrane proteins with short extracellular domains, including the ligand-activated form of the receptor Notch and beta-amyloid precursor protein (beta-APP). Transmembrane cleavage of Notch is essential for signal transduction, and transmembrane cleavage of beta-APP generates pathogenic amyloid peptides implicated in Alzheimer's disease. Here, we investigate the requirement for Nicastrin in Presenilin-mediated transmembrane cleavage. We show that, in Drosophila, loss of Nicastrin activity blocks the accumulation of Presenilin associated with the apical plasma membrane, abolishes Presenilin-dependent cleavage of the transmembrane domains of Notch and beta-APP, and abrogates Notch signal transduction.