DSL ligands promote proteolysis of the Notch receptor, to release active Notch intracellular domain (N(ICD)). Conversely, the E3 ubiquitin ligase Deltex can activate ligand-independent Notch proteolysis and signaling. Here we show that Deltex effects require endocytic trafficking by HOPS and AP-3 complexes. Our data suggest that Deltex shunts Notch into an endocytic pathway with two possible endpoints. If Notch transits into the lysosome lumen, it is degraded. However, if HOPS and AP-3 deliver Notch to the limiting membrane of the lysosome, degradation of the Notch extracellular domain allows subsequent Presenilin-mediated release of N(ICD). This model accounts for positive and negative regulatory effects of Deltex in vivo. Indeed, we uncover HOPS/AP-3 contributions to Notch signaling during Drosophila midline formation and neurogenesis. We discuss ways in which these endocytic pathways may modulate ligand-dependent and -independent events, as a mechanism that can potentiate Notch signaling or dampen noise in the signaling network.