The Drosophila glucoside xylosyltransferase Shams xylosylates Notch and inhibits Notch signaling in specific contexts including wing vein development. However, the molecular mechanisms underlying context-specificity of the shams phenotype is not known. Considering the role of Delta-Notch signaling in wing vein formation, we hypothesized that Shams might affect Delta-mediated Notch signaling in Drosophila. Using genetic interaction studies, we find that altering the gene dosage of Delta affects the wing vein and head bristle phenotypes caused by loss of Shams or by mutations in the Notch xylosylation sites. Clonal analysis suggests that loss of shams promotes Delta-mediated Notch activation. Further, Notch trans-activation by ectopically overexpressed Delta shows a dramatic increase upon loss of shams. In agreement with the above in vivo observations, cell aggregation and ligand-receptor binding assays show that shams knock-down in Notch-expressing cells enhances the binding between Notch and trans-Delta without affecting the binding between Notch and trans-Serrate and cell surface levels of Notch. Loss of Shams does not impair the cis-inhibition of Notch by ectopic overexpression of ligands in vivo or the interaction of Notch and cis-ligands in S2 cells. Nevertheless, removing one copy of endogenous ligands mimics the effects of loss shams on Notch trans-activation by ectopic Delta. This favors the notion that trans-activation of Notch by Delta overcomes the cis-inhibition of Notch by endogenous ligands upon loss of shams. Taken together, our data suggest that xylosylation selectively impedes the binding of Notch with trans-Delta without affecting its binding with cis-ligands and thereby assists in determining the balance of Notch receptor's response to cis-ligands vs. trans-Delta during Drosophila development.