Cell-cell signalling mediated by the receptor Notch regulates the differentiation of a wide variety of cell types in invertebrate and vertebrate species [1], but the mechanism of signal transduction following receptor activation is unknown. A recent model proposes that ligand binding induces intracellular processing of Notch [2-4]; the processed intracellular form of Notch then translocates to the nucleus and interacts with DNA-bound Suppressor of Hairless (Su(H)), a transcription factor required for target gene expression [5-8], As intracellular processing of endogenous Notch has so far escaped immunodetection [1], we devised a sensitive nuclear-activity assay to monitor indirectly the processing of an engineered Notch in vivo. First, we show that the intracellular domain of Notch, fused to the DNA-binding domain of Gal4, regulated transcription, in a Delta-independent manner. Second, we show that full-length Notch, containing the Ga14 DNA binding domain inserted 27 amino acids carboxy-terminal to the transmembrane domain, activated transcription in a Delta dependent manner. These results provide indirect evidence for a ligand dependent intracellular processing event in vivo, supporting the view that Su(H)-dependent Notch signalling involves intracellular cleavage, and transcriptional regulation by processed Notch. (C) Current Biology Ltd.