The mechanisms that establish and sharpen pattern across epithelia are poorly understood. In the developing nervous system, the first pattern elements appear as 'proneural clusters'. In the morphogenetic furrow of the immature Drosophila retina proneural clusters emerge in a wave as a patterned array of 6-10-cell groups, which are recognizable by expression of Atonal, a basic helix-loop-helix transcription factor that is required to establish and pattern the first cell fate(1-3). The establishment and subsequent patterning of Atonal expression requires activity of the signalling transmembrane receptor Notch(2,4). Here we present in vivo and biochemical evidence that the secreted protein Scabrous associates with Notch, and can stabilize Notch protein at the surface. The result is a regulation of Notch activity that sharpens proneural cluster boundaries and ensures establishment of single pioneer neurons.