The α-, β-, and γ-protocadherins (Pcdhα, Pcdhβ, and Pcdhγ) comprise a large family of single-pass transmembrane proteins predominantly expressed in the nervous system. These proteins contain six cadherin-like extracellular domains, and proteolysis of Pcdhα and Pcdhγ by the γ-secretase complex releases their intracellular domains into the cytoplasm where they may function locally and/or enter the nucleus and affect gene expression. Thus, cleavage of Pcdhs may function to link intercellular contacts and intracellular signaling. Here we report that shedding of the Pcdhα extracellular domain and subsequent processing by γ-secretase require endocytosis and that Pcdhs interact with the regulator of vesicular sorting ESCRT-0 in undifferentiated cells. We also find that the accumulation of Pcdh cleavage products is regulated during development. Differentiation leads to an increase in the interactions between Pcdh proteins and a decrease in the accumulation of cleavage products. We conclude that Pcdh processing requires endocytosis and that the level of cleavage products is regulated during neuronal differentiation.