The tumour suppressor Lethal (2) giant discs (Lgd) is a regulator of endosomal trafficking of the Notch signalling receptor as well as other transmembrane proteins in Drosophila. The loss of its function results in an uncontrolled ligand-independent activation of the Notch signalling receptor. Here, we investigated the consequences of loss of lgd function and the requirements for the activation of Notch. We show that the activation of Notch in lgd cells is independent of Kuz and dependent on γ-secretase. We found that the lgd cells have a defect that delays degradation of transmembrane proteins, which are residents of the plasma membrane. Furthermore, our results show that the activation of Notch in lgd cells occurs in the lysosome. By contrast, the pathway is activated at an earlier phase in mutants of the gene that encodes the ESCRT-III component Shrub, which is an interaction partner of Lgd. We further show that activation of Notch appears to be a general consequence of loss of lgd function. In addition, electron microscopy of lgd cells revealed that they contain enlarged multi-vesicular bodies. The presented results further elucidate the mechanism of uncontrolled Notch activation upon derailed endocytosis.