The formation of proximal nephron segments requires canonical Notch2 signaling, but other functions of Notch signaling during renal development are incompletely understood. Here, we report that proximal tubules forming with reduced Notch signaling, resulting from delayed conditional inactivation of Notch1 and/or Notch2, are prone to cyst formation and tubular epithelial stratification. Conditional inactivation of the DNA binding factor RBP-J, which mediates Notch signaling, also resulted in multiple congenital cysts arising from the proximal tubule. Moreover, a few stratified foci/microadenomas containing hyperproliferative cells, resembling precursors of papillary renal cell carcinoma, formed in these proximal tubules. Epithelial stratification correlated neither with reduced expression of the transcriptional regulator of ciliary proteins TCF2/HNF1β nor with loss of apical-basal polarity. Instead, Notch signaling helped to restrict the orientation of epithelial mitotic spindles to a plane parallel to the basement membrane during nephron elongation. In the absence of Notch, random spindle orientation may explain the epithelial stratification and cyst formation. Furthermore, post hoc analysis of human class 1 papillary renal cell carcinoma revealed reduced Notch activity in these tumors, resulting from abundant expression of a potent inhibitor of canonical Notch signaling, KyoT3/FHL1B. In summary, these data suggest that canonical Notch signaling maintains the alignment of cell division in the proximal tubules during nephrogenesis and that perturbations in Notch signaling may lead to cystic renal disease and tumorigenesis.