Notch signalling controls the differentiation of haematopoietic progenitor cells (HPCs). Here, we show that loss of membrane‐type 1 matrix metalloproteinase (MT1‐MMP, MMP14), a cell surface protease expressed in bone marrow stromal cells (BMSCs), increases Notch signalling in HPCs and specifically impairs B‐lymphocyte development. When co‐cultured with BMSCs in vitro, HPCs differentiation towards B lymphocytes is significantly compromised on MT1‐MMP‐deficient BMSCs and this defect could be completely rescued by DAPT, a specific Notch signalling inhibitor. The defective B‐lymphocyte development could also be largely rescued by DAPT in vivo. MT1‐MMP interacts with Notch ligand Delta‐like 1 (Dll1) and promotes its cleavage on cell surface in BMSCs. Ectopic MT1‐MMP cleaves Dll1 and results in diminished Notch signalling in co‐cultured cells. In addition, recombinant MT1‐MMP cleaves a synthetic Dll1 peptide at the same site where MT1‐MMP cleaves Dll1 on the cell surface. Our data suggest that MT1‐MMP directly cleaves Dll1 on BMSCs to negatively regulate Notch signalling to specifically maintain normal B‐cell development in bone marrow.