Physiologically, Notch signal transduction plays a pivotal role in differentiation; pathologically, Notch signaling contributes to the development of cancer. Transcriptional activation of Notch target genes involves cleavage of the Notch receptor in response to ligand binding, production of the Notch intracellular domain (NICD), and NICD migration into the nucleus and assembly of a coactivator complex. Posttranslational modifications of the NICD are important for its transcriptional activity and protein turnover. Deregulation of Notch signaling and stabilizing mutations of Notch1 have been linked to leukemia development. We found that the methyltransferase CARM1 (coactivator-associated arginine methyltransferase 1; also known as PRMT4) methylated NICD at five conserved arginine residues within the C-terminal transactivation domain. CARM1 physically and functionally interacted with the NICD-coactivator complex and was found at gene enhancers in a Notch-dependent manner. Although a methylation-defective NICD mutant was biochemically more stable, this mutant was biologically less active as measured with Notch assays in embryos of Xenopus laevis and Danio rerio. Mathematical modeling indicated that full but short and transient Notch signaling required methylation of NICD.