The Drosophila eye, a paradigm for epithelial organization, is highly polarized with mirror-image symmetry about the equator. The R3 and R4 photoreceptors in each ommatidium are vital in this polarity; they adopt asymmetrical positions in adult ommatidia and are the site of action for several essential genes. Two such genes are frizzled (fz) and dishevelled (dsh), the products of which are components of a signalling pathway required in R3, and which are thought to be activated by a diffusible signal. Here we show that the transmembrane receptor Notch is required downstream of dsh in R3/R4 for them to adopt distinct fates. By using an enhancer for the Notch target gene Enhancer of split mdelta, we show that Notch becomes activated specifically in R4. We propose that Fz/Dsh promotes activity of the Notch ligand Delta and inhibits Notch receptor activity in R3, creating a difference in Notch signalling capacity between R3 and R4. Subsequent feedback in the Notch pathway ensures that this difference becomes amplified. This interplay between Fz/Dsh and Notch indicates that polarity is established through local comparisons between two cells and explains how a signal from one position (for example, the equator in the eye) could be interpreted by all ommatidia in the field.