Dynamic drop down list, based on a criteria

Hi

I have a spreadsheet with three columns - project name, category and sub-category. Information is entered into the file regularly, which means, that the number of rows will change.

In the same file but in a separate sheet, I need to be able to create drop down list - to select "project name" and then, based on the selected project, second drop down list should be used to select "category" or select "sub-category".

How can I dynamically create lists for the drop down menus, with unique list of items for selection?

thanks