We investigate the internal thermal evolution of Kuiper belt objects (KBOs), small (radii <1000 km), icy (mean densities <2500 kg m(-3)) bodies orbiting beyond Neptune, focusing on Pluto's moon Charon in particular. Our calculations are time-dependent and account for differentiation. We review evidence for ammonia hydrates in the ices of KBOs, and include their effects on the thermal evolution. A key finding is that the production of the first melt, at the melting point of ammonia dihydrate, approximate to 176 K, triggers differentiation of rock and ice. The resulting structure comprises a rocky core surrounded by liquids and ice, enclosed within a >100-km thick undifferentiated crust of rock and ice. This structure is especially conducive to the retention of subsurface liquid, and bodies the size of Charon or larger (radii >600 km) are predicted to retain some subsurface liquid to the present day. We discuss the possibility that this liquid can be brought to the surface rapidly via self-propagating cracks. We conclude that cryovolcanism is a viable process expected to affect the surfaces of large KBOs including Charon. (C) 2009 Elsevier Inc. All rights reserved.