Presenilin-1 (PS1), a polytopic membrane protein primarily localized to the endoplasmic reticulum, is required for efficient proteolysis of both Notch and beta-amyloid precursor protein (APP) within their trans- membrane domains. The activity that cleaves APP (called gamma-secretase) has properties of an aspartyl protease, and mutation of either of the two aspartate residues located in adjacent transmembrane domains of PS1 inhibits gamma-secretase processing of APP. We show here that these aspartates are required for Notch processing, since mutation of these residues prevents PS1 from inducing the gamma-secretase-like proteolysis of a Notch1 derivative. Thus PS1 might function in Notch cleavage as an aspartyl protease or di-aspartyl protease cofactor. However, the ER localization of PS1 is inconsistent with that hypothesis, since Notch cleavage occurs near the cell surface. Using pulse-chase and biotinylation assays, we provide evidence that PS1 binds Notch in the ER/Golgi and is then co-transported to the plasma membrane as a complex. PS1 aspartate mutants were indistinguishable from wild-type PS1 in their ability to bind Notch or traffic with it to the cell surface, and did not alter the secretion of Notch. Thus, PS1 appears to function specifically in Notch proteolysis near the plasma membrane as an aspartyl protease or cofactor.