Nicastrin is genetically linked to Notch/lin-12 signaling in C. elegans and is part of a large multiprotein complex along with Presenilin. Here we describe the isolation and characterization of Drosophila Nicastrin (Nic) mutants. Nic mutants and tissue clones display characteristic Notch-like phenotypes. Genetic and inhibitor studies indicate a function for Nicastrin in the gamma-secretase step of Notch processing, similar to Presenilin. Further, Nicastrin is genetically required for signaling from membrane-anchored activated Notch. In the absence of Nicastrin, Presenilin is destabilized and mature C-terminal subunits are absent. Nicastrin might recruit gamma-secretase substrates into the proteolytic complex as a prerequisite for Presenilin maturation and active complex assembly.