The Delta–Notch signal transduction pathway has widespread roles in animal development in which it appears to control cell fate. CBF1/RBP-Jκ, the mammalian homolog ofDrosophila Suppressor of Hairless [Su(H)], switches from a transcriptional repressor to an activator upon Notch activation. The mechanism whereby Notch regulates this switch is not clear. In this report we show that prior to induction CBF1/RBP-Jκ interacts with a corepressor complex containing SMRT (silencing mediator ofretinoid and thyroid hormone receptors) and the histone deacetylase HDAC-1. This complex binds via the CBF1 repression domain, and mutants defective in repression fail to interact with the complex. Activation by Notch disrupts the formation of the repressor complex, thus establishing a molecular basis for the Notch switch. Finally, ESR-1, a Xenopus gene activated by Notch and X-Su(H), is induced in animal caps treated with TSA, an inhibitor of HDAC-1. The functional role for the SMRT/HDAC-1 complex in CBF1/RBP-Jκ regulation reveals a novel genetic switch in which extracellular ligands control the status of critical nuclear cofactor complexes.