The neurogenic Notch locus of Drosophila encodes a receptor necessary for cell fate decisions within equivalence groups, such as proneural clusters. Specification of alternate fates within clusters results from inhibitory communication among cells having comparable neural fate potential. Genetically, Hairless (H) acts as an antagonist of most neurogenic genes and may insulate neural precursor cells from inhibition. H function is required for commitment to the bristle sensory organ precursor (SOP) cell fate and for daughter cell fates. Using Notch gain-of-function alleles and conditional expression of an activated Notch transgene, we show that enhanced signaling produces H-like loss-of-function phenotypes by suppressing bristle SOP cell specification or by causing an H-like transformation of sensillum daughter cell fates. Furthermore, adults carrying Notch gain of function and H alleles exhibit synergistic enhancement of mutant phenotypes. Over-expression of an H+ transgene product suppressed virtually all phenotypes generated by Notch gain-of-function genotypes. Phenotypes resulting from over-expression of the H+ transgene were blocked by the Notch gain-of-function products, indicating a balance between Notch and H activity. The results suggest that H insulates SOP cells from inhibition and indicate that H activity is suppressed by Notch signaling.