The catalytic subunit of gamma-secretase is thought to be Presenilin, which is required for both the cleavage of APP and in the processing of Notch. Presenilin is found in a multisubunit complex that also contains Nicastrin. Nicastrin has been implicated in APP processing, but its role in Notch signaling remains unclear. Here we show that Drosophila Nicastrin is required for Notch signaling, and acts specifically at the S3 cleavage step. Partially processed Notch accumulates apically in nicastrin and presenilin mutant follicle cells. nicastrin and presenilin mutations also disrupt the spectrin cytoskeleton, suggesting that the gamma-secretase complex has another function in Drosophila in addition to its role in processing Notch and APP.