The cell surface receptor Notch is required during development of Drosophila melanogaster for differentiation of numerous tissues. Notch is often required for specification of precursor cells by lateral inhibition and subsequently for differentiation of tissues from these precursor cells. We report here that certain embryonic cells and tissues that develop after lateral inhibition, like the connectives and commissures of the central nervous system, are enriched for a form of Notch not recognized by antibodies made against the intracellular region carboxy-terminal of the CDC10/Ankyrin repeats. Western blotting and immunoprecipitation analyses show that Notch molecules lacking this region are produced during embryogenesis and form protein complexes with the ligand Delta. Experiments with cultured cells indicate that Delta promotes accumulation of a Notch intracellular fragment lacking the carboxyl terminus. Furthermore, Notch lacking the carboxyl terminus functions as a receptor for Delta. These results suggest that Notch activities during development include generation and activity of a truncated receptor we designate NΔCterm.