During the development of the Drosophila adult peripheral nervous system (PNS), inhibitory cell-cell interactions mediated by the Notch receptor are essential for proper specification of sensory organ cell fates. We have reported previously (M. W. Leviten, E. C. Lai and J. W. Posakony (1997) Development 124, 4039-4051) that the 3' untranslated regions (UTRs) of many genes involved in Notch signalling, including Bearded (Brd) and the genes of the Enhancer of split Complex (E(spl)-C), contain (often in multiple copies) two novel heptanucleotide sequence motifs, the Brd box (AGCTTTA) and the GY box (GTCTTCC). Moreover, the molecular lesion associated with a strong gain-of-function mutant of Brd suggested that the loss of these sequence elements from its 3' UTR might be responsible for the hyperactivity of the mutant gene. We show here that the wild-type Brd 3' UTR confers negative regulatory activity on heterologous transcripts in vivo and that this activity requires its three Brd box elements and, to a lesser extent, its GY box. We find that Brd box-mediated regulation decreases both transcript and protein levels, and our results suggest that deadenylation or inhibition of polyadenylation is a component of this regulation. Though Brd and the E(spl)-C genes are expressed in spatially restricted patterns in both embryos and imaginal discs, we find that the regulatory activity that functions through the Brd box is both temporally and spatially general. A Brd genomic DNA transgene with specific mutations in its Brd and GY boxes exhibits hypermorphic activity that results in characteristic defects in PNS development, demonstrating that Brd is normally regulated by these motifs. Finally, we show that Brd boxes and GY boxes in the E(spl)m4 gene are specifically conserved between two distantly related Drosophila species, strongly suggesting that E(spl)-C genes are regulated by these elements as well.