In the developing imaginal wing disc of Drosophila, cells at the dorsoventral boundary require localized Notch activity for specification of the wing margin. The Notch ligands Serrate and Delta are required on opposite sides of the presumptive wing margin and, even though activated forms of Notch generate responses on both sides of the dorsoventral boundary, each ligand generates a compartment-specific response. In this report we demonstrate that Serrate, which is expressed in the dorsal compartment, does not signal in the dorsal regions due to the action of the fringe gene product. Using ectopic expression, we show that regulation of Serrate by fringe occurs at the level of protein and not Serrate transcription. Furthermore, replacement of the N-terminal region of Serrate with the corresponding region of Delta abolishes the ability of fringe to regulate Serrate without altering Serrate-specific signaling.