Notch proteins are ligand-activated transmembrane receptors involved in cell-fate selection throughout development. No known enzymatic activity is contained within Notch and the molecular mechanism by which it transduces signals across the cell membrane is poorly understood. In many instances, Notch activation results in transcriptional changes in the nucleus through an association with members of the CSL family of DNA-binding proteins (where CSL stands for CBF1, Su(H), Lag-1). As Notch is located in the plasma membrane and CSL is a nuclear protein, two models have been proposed to explain how they interact. The first suggests that the two interact transiently at the membrane. The second postulates that Notch is cleaved by a protease, enabling the cleaved fragment to enter the nucleus. Here we show that signalling by a constitutively active membrane-bound Notch-1 protein requires the proteolytic release of the Notch intracellular domain (NICD), which interacts preferentially with CSL. Very small amounts of NICD are active, explaining why it is hard to detect in the nucleus in vivo. We also show that it is ligand binding that induces release of NICD.