The separation of cells into populations that do not intermix, termed compartments, is a fundamental organizing principle during development. Dorsal-ventral compartmentalization of the Drosophila wing is regulated downstream of the apterous (ap) gene, which encodes a transcription factor that specifies dorsal wing fate. fringe (fng) is normally expressed by dorsal cells downstream of ap; here we show that fng plays a key role in dorsal-ventral compartmentalization. Loss of fng function causes dorsal cells to violate the compartment boundary, and ectopic expression of the Fng protein causes ventral cells to violate thecompartment boundary. Fng modulates signalling through the Notch receptor. Notch and its ligands are essential for formation of the dorsal-ventral compartment border, and repositioning the stripe of Notch activation that is normally established there appears to reposition the compartment border. However, activation of Notch does not itself confer either dorsal or ventral cell location, and fng can influence compartmentalization even within regions of ubiquitous Notch activation. Our results indicate that the primary mechanism by which fng establishes a compartment border is by positioning a stripe of Notch activation, but also that fng may exert additional influences on compartmentalization.