Notch is a transmembrane protein involved in cell fate determination. In the present study, we observed temporally and spatially restricted expression of Notch1 in developing cartilage. Notch1 was localized starting from the mesenchymal condensation stage of embryonic mouse forelimbs. Interestingly, although localization could not be detected in the proliferating chondrocytes, obvious immunoreactivity indicating its expression was retained in the perichondrial region. Next, we investigated the expression of Notch1 and related molecules in a chondrogenic cell line, ATDC5 cells. Notch1, Delta-like (Dll)1, Deltex2, and Deltex3 were coexpressed after 6-day insulin treatment. Expression of Hairy and Enhancer of split homologue (HES)-1 followed thereafter. These results suggest that Notch may have a role in the early stage of chondrogenesis. To assess the effect of Notch activation, we cultured ATDC5 cells with a myeloma clone constitutively expressing Dll1, a ligand of Notch. We also used an adenovirus vector to express the constitutively active Notch1 intracellular domain (NIC). Activating either the endogenous or exogenous Notch receptor dramatically inhibited chondrogenic cell differentiation of ATDC5 cells, as assessed by Alcian blue staining of the cells and chondrocyte differentiation markers. Last, we investigated the effect of NIC on the proliferation of the ATDC5 cells. Expression of NIC by the adenovirus strongly suppressed thymidine incorporation. These results indicate that Notch is expressed in the initial stage of chondrogenic cell differentiation and has a strong inhibitory effect on both differentiation and proliferation of the cells when activated. The expression of Notch decreases as chondrogenic differentiation proceeds; however, a population of the cells with sustained expression of Notch1 become perichondrial cells. Considering that the perichondrium acts as a stem cell source of osteoblasts and chondrocytes, Notch1 may have a role in the formation of these cells by suppressing both differentiation and proliferation.