ABSTRACT The Notch signaling pathway is required, in concert with cell-type-specific transcriptional regulators and other signaling processes, for multiple cell fate decisions during mesodermal and ectodermal tissue development. In many instances, Notch signaling occurs initially in a bidirectional manner and then becomes unidirectional upon amplification of small inherent differences in signaling activity between neighboring cells. In addition to ligands and extracellular modulators of the Notch receptor, several intracellular proteins have been identified that can positively or negatively influence the activity of the Notch pathway during these dynamic processes. Here, we describe a new gene, Barbu, whose product can antagonize Notch signaling activity during Drosophila development. Barbu encodes a small and largely cytoplasmic protein with sequence similarity to the proteins encoded by the transcription units m4 and mα of the E(spl) complex. Ectopic expression studies with Barbu provide evidence that Barbu can antagonize Notch during lateral inhibition processes in the embryonic mesoderm, sensory organ specification in imaginal discs and cell type specification in developing ommatidia. Barbu loss-of-function mutations cause lethality and disrupt the establishment of planar polarity and photoreceptor specification in eye imaginal discs, which may also be a consequence of altered Notch signaling activities. Furthermore, in the embryonic neuroectoderm, Barbu expression is inducible by activated Notch. Taken together, we propose that Barbu functions in a negative feed-back loop, which may be important for the accurate adjustment of Notch signaling activity and the extinction of Notch activity between successive rounds of signaling events.