The Notch receptor mediates a short-range signal that regulates many cell fate decisions. The misregulation of Notch has been linked to cancer and to developmental disorders. Upon binding to its ligands, Delta (Dl) or Serrate (Ser), the Notch ectodomain is shed by the action of an ADAM protease. The Notch intracellular domain is subsequently released proteolytically from the membrane by Presenilin and translocates to the nucleus to activate the transcription factor, Suppressor of Hairless. We show in Drosophila that Notch signaling is limited by the activity of two Nedd4 family HECT domain proteins, Suppressor of deltex [Su(dx)] and DNedd4. We rule out models by which Su(dx) downregulates Notch through modulating Deltex or by limiting the adherens junction accumulation of Notch. Instead, we show that Su(dx) regulates the postendocytic sorting of Notch within the early endosome to an Hrs- and ubiquitin-enriched subdomain en route to the late endosome. We propose a model in which endocytic sorting of Notch mediates a decision between its activation and downregulation. Such intersections between trafficking routes may provide key points at which other signals can modulate Notch activity in both normal development and in the pathological misactivation of Notch.