The Drosophila embryonic epidermis has been a key model for understanding the establishment of cell type diversity across a cellular field. During segmental patterning, distinct signaling territories are established that employ either the Hedgehog, Spitz, Serrate or Wingless ligands. How these pathways control segmental pattern is not completely clear. One major decision occurs as cells are allocated to differentiate either smooth cuticle or denticle type cuticle. This allocation is based on competition between Wingless signaling and Spitz, which activates the Epidermal Growth Factor Receptor (EGFR). Here we show that a main role for Serrate-Notch signaling is to adjust the Spitz signaling domain. Serrate accomplishes this task by activating Notch in a discrete domain, the main purpose of which is to broaden the spatially regulated expression of Rhomboid. This adjusts the breadth of the source for Spitz, since Rhomboid is necessary for the production of active Spitz. We also show that the Serrate antagonist, fringe, must temper Notch activity to insure that the activation of the EGFR is not too robust. Together, Serrate and Fringe modulate Notch activation to generate the proper level of EGFR activation. If Serrate-Notch signaling is absent, the denticle field narrows while the smooth cell field expands, as judged by the expression of the denticle field determinant Ovo/Shaven baby. This establishes one important role for the Serrate signaling territory, which is to define the extent of denticle field specification.