The coordination of signals from different pathways is important for cell fate specification during animal development. Here, we define a novel mode of crosstalk between the epidermal growth factor receptor/Ras/mitogen-activated protein kinase cascade and the LIN-12/Notch pathway during Caenorhabditis elegans vulval development. Six vulval precursor cells (VPCs) are initially equivalent but adopt different fates as a result of an inductive signal mediated by the Ras pathway and a lateral signal mediated by the LIN-12/Notch pathway. One consequence of activating Ras is a reduction of LIN-12 protein in P6.p (ref. 2), the VPC believed to be the source of the lateral signal. Here we identify a 'downregulation targeting signal' (DTS) in the LIN-12 intracellular domain, which encompasses a di-leucine-containing endocytic sorting motif. The DTS seems to be required for internalization of LIN-12, and on Ras activation it might mediate altered endocytic routing of LIN-12, leading to downregulation. We also show that if LIN-12 is stabilized in P6.p, lateral signalling is compromised, indicating that LIN-12 downregulation is important in the appropriate specification of cell fates in vivo.