Cell-cell interactions mediated by Notch and its ligands are known to effect many cell fate decisions in both invertebrates and vertebrates. However, the mechanisms involved in ligand induced Notch activation are unknown. Recently it was shown that, in at least some cases, endocytosis of the extracellular domain of Notch and ligand by the signaling cell is required for signal induction in the receptive cell. These results imply that soluble ligands (ligand extracellular domains) although capable of binding Notch would be unlikely to activate it. To test the potential activity of soluble Notch ligands, we generated monomeric and dimeric forms of the Notch ligand Delta-1 by fusing the extracellular domain to either a series of myc epitopes (Delta-1^ext-myc) or to the Fc portion of human IgG-1 (Delta-1^ext-IgG), respectively. Notch activation, assayed by inhibition of differentiation in C2 myoblasts and by HES1 transactivation in U20S cells, occurred when either Delta-1^ext-myc or Delta-1^ext-IgG were first immobilized on the plastic surface. However, Notch was not activated by either monomeric or dimeric ligand in solution (non-immobilized). Furthermore, both non-immobilized Delta-1^ext-myc and Delta-1^ext-IgG blocked the effect of immobilized Delta. These results indicate that Delta-1 extracellular domain must be immobilized to induce Notch activation in C2 or U20S cells and that non-immobilized Delta-1 extracellular domain is inhibitory to Notch function. These results imply that ligand stabilization may be essential for Notch activation.