A show cause letter is a written notice asking the employee to explain or to "show cause" why he should not be given disciplinary action given what he did or did not do. In some company, the show cause letter itself serves as the first notice.
A show cause letter will indicate the start of a domestic inquiry. Needless to say, the issuance and handling of such a letter need to be dealt with in a subtle and diligent manner, as it is a very delicate and sensitive issue. However, before the letter is issued, the HR department must make every effort to contact the accused worker for a proper, professional discussion on the matter; this is to allow the accused party's side of the story, preventing any form of victimization from occurring. From then on, it can be determined if there is a case to act upon. As such, a show cause letter is only reserved as an absolute last resort, when the particulars of a case have escalated to the point where a domestic inquiry becomes necessary.
A sample of Show Cause Letter for reference :