Autophagy is a conserved, intracellular, lysosomal degradation pathway. While mechanistic aspects of this pathway are increasingly well defined, it remains unclear how autophagy modulation impacts normal physiology. It is, however, becoming clear that autophagy may play a key role in regulating developmental pathways. Here we describe for the first time how autophagy impacts stem cell differentiation by degrading Notch1. We define a novel route whereby this plasma membrane-resident receptor is degraded by autophagy, via uptake into ATG16L1-positive autophagosome-precursor vesicles. We extend our findings using a physiologically relevant mouse model with a hypomorphic mutation in Atg16L1, a crucial autophagy gene, which shows developmental retention of early-stage cells in various tissues where the differentiation of stem cells is retarded and thus reveal how modest changes in autophagy can impact stem cell fate. This may have relevance for diverse disease conditions, like Alzheimer's Disease or Crohn's Disease, associated with altered autophagy.