Endocytosis modulates the Notch signaling pathway in both the signaling and receiving cells. One recent hypothesis is that endocytosis of the ligand Delta by the signaling cells is essential for Notch activation in the receiving cells. Here, we present evidence in strong support of this model. We show that in the developing Drosophila eye Fat facets (Faf), a deubiquitinating enzyme, and its substrate Liquid facets (Lqf), an endocytic epsin, promote Delta internalization and Delta signaling in the signaling cells. We demonstrate that while Lqf is necessary for three different Notch/Delta signaling events at the morphogenetic furrow, Faf is essential only for one: Delta signaling by photoreceptor precluster cells, which prevents recruitment of ectopic neurons. In addition, we show that the ubiquitin-ligase Neuralized (Neur), which ubiquitinates Delta, functions in the signaling cells with Faf and Lqf. The results presented bolster one model for Neur function in which Neur enhances Delta signaling by stimulating Delta internalization in the signaling cells. We propose that Faf plays a role similar to that of Neur in the Delta signaling cells. By deubiquitinating Lqf, which enhances the efficiency of Delta internalization, Faf stimulates Delta signaling.