Copy and paste the below code in your navigation menu file like top.phtml or topmenu.phtml .

<?php $_helper = Mage::helper('catalog/category') ?>
<?php $_categories = $_helper->getStoreCategories() ?>
<?php $currentCategory = Mage::registry('current_category') ?>
<?php if (count($_categories) > 0): ?>
    <ul id="nav">
        <?php foreach($_categories as $_category): ?>
            <li>
                <a href="<?php echo $_helper->getCategoryUrl($_category) ?>">
                    <?php echo $_category->getName() ?>
                </a>
                <?php $_category = Mage::getModel('catalog/category')->load($_category->getId()) ?>
                <?php $_subcategories = $_category->getChildrenCategories() ?>
                <?php if (count($_subcategories) > 0): ?>
                    <ul>
                        <?php foreach($_subcategories as $_subcategory): ?>
                            <li>
                                <a href="<?php echo $_helper->getCategoryUrl($_subcategory) ?>">
                                    <?php echo $_subcategory->getName() ?>
                                </a>
                            </li>
                        <?php endforeach; ?>
                    </ul>
                <?php endif; ?>
            </li>
        <?php endforeach; ?>
    </ul>
<?php endif; ?>

Now you have to set the css for this type of menu:

/********** < Navigation */
.nav-container {border-bottom-right-radius: 7px;border-top-right-radius: 7px;margin: 0px;
background: #fff;width: 995px;height: 44px;}
#nav { margin:0px auto; padding:0 0px; font-size:13px;
z-index: 9999;
margin: 10px 0 4px 0;
background:#fff;
-moz-border-radius: 5px;
-webkit-border-radius: 5px;
-khtml-border-radius: 5px;
border-radius: 5px;height:35px}

/* All Levels */ /* Style consistent throughout all nav levels */
#nav li { position:relative; text-align:left;
margin-top: 0px;
padding: 0px;
vertical-align: top;}
#nav li.over { z-index:12000; }
#nav .parent{font-size:16px}
#nav a,
#nav a:hover { display:block; line-height:1.3em; text-decoration:none;}
#nav span { display:block; cursor:pointer; white-space:nowrap; }
#nav li ul span {white-space:normal; }
#nav ul li.parent a { background:#fff;}
#nav ul li.parent li a { background-image:none; }

/* 0 Level */
#nav li { float:left; background:gray }
#nav li.active a { color:#ffffff; }
#nav a { float:left; padding:0px; color:#fff;font: bold 16px; line-height:36px;/*  text-transform:capitalize */ text-align: center;
width: 100px;}
#nav li.over a,
#nav a:hover { color:#ffffff; line-height:36px; }

/* 1st Level */
#nav ul{width: 200px !important; float: left; background-color: #ffffff; border: 1px solid #848484 !important; box-shadow: 3px 3px 4px #A4A4A4; border-top:none !important;
	position: absolute; top:36px !important; left:0px; padding-top: 10px;
}
#nav ul li,
#nav ul li.active { float:none; margin:0;}
#nav ul li.last { background:#887B19; padding-bottom:0; }

#nav ul a,
#nav ul a:hover { color:#0033ff !important; line-height: 20px !important;}
#nav ul li a { font-weight:normal !important; padding: 0px; margin: 0px; color: #000 !important; text-align: left; font-size: 12px !important;
line-height: 20px !important;}

/* 2nd Level */
#nav ul,
#nav div { position:absolute; width:30em; top:44px; left:-10000px; border:none; }
#nav div ul { position:static; border:none; }

.nav-static-block
{
	position:relative;background:#fff; border-top:1px solid #ccc; padding:2px;
	margin:0px;overflow:hidden;
}
/* 3rd+ Level */
#nav ul ul,
#nav ul div { top:5px; }

#nav ul li a { background:#fff; height:30px;color:#000}
#nav ul li a:hover { background:#fff;  }
#nav ul li a,
#nav ul li a:hover { color:#000; padding-left:7px;}
#nav ul span{padding:2px}
#nav ul li.last li span { padding:0px 15px 0px 15px; }

/* Show menu */
#nav li ul.shown-sub,
#nav li div.shown-sub { left:0; z-index:999;}
#nav li .shown-sub ul.shown-sub,
#nav li .shown-sub li div.shown-sub { left:100px; }
/********** Navigation > */

Display top level categories only

<?php $_helper = Mage::helper('catalog/category') ?> // create a object of helper class.
<?php $_categories = $_helper->getStoreCategories() ?> // fetch you store category
<?php if (count($_categories) > 0): ?>
    <ul>
        <?php foreach($_categories as $_category): ?>
            <li>
                <a href="<?php echo $_helper->getCategoryUrl($_category) ?>">
                    <?php echo $_category->getName() ?>
                </a>
            </li>
        <?php endforeach; ?>
    </ul>
<?php endif; ?>