The digestive tract epithelium and its adjoining mesenchyme undergo coordinated patterning and growth during development. The signals they exchange in the process are not fully characterized but include ligands of the Hedgehog (Hh) family, which originate in the epithelium and are necessary for mesenchymal cells to expand in number and drive elongation of the developing gut tube. The Notch signaling pathway has known requirements in fetal and adult intestinal epithelial progenitors. We detected Notch pathway activity in the embryonic gut mesenchyme and used conditional knockout mice to study its function. Selective disruption of the Notch effector gene RBP-Jκ (Rbpj) in the mesenchyme caused progressive loss of subepithelial fibroblasts and abbreviated gut length, revealing an unexpected requirement in this compartment. Surprisingly, constitutive Notch activity also induced rapid mesenchymal cell loss and impaired organogenesis, probably resulting from increased cell death and suggesting the need for a delicate balance in Notch signaling. Because digestive tract anomalies in mouse embryos with excess Notch activity phenocopy the absence of Hh signaling, we postulated that endodermal Hh restrains mesenchymal Notch pathway activity. Indeed, Hh-deficient embryos showed Notch overactivity in their defective gut mesenchyme and exposure to recombinant sonic hedgehog could override Notch-induced death of cultured fetal gut mesenchymal cells. These results reveal unexpected interactions between prominent signals in gastrointestinal development and provide a coherent explanation for Hh requirements in mesenchymal cell survival and organ growth.