BACKGROUND: Notch signaling in vascular smooth muscle precursors is required for smooth muscle differentiation. Jagged1 expression on endothelium activates Notch in vascular smooth muscle precursors including those of neural crest origin to initiate the formation of a smooth muscle layer in a maturing blood vessel. METHODS AND RESULTS: Here, we show that Jagged1 is a direct Notch target in smooth muscle, resulting in a positive feedback loop and lateral induction that propagates a wave of smooth muscle differentiation during aortic arch artery development. In vivo, we show that Notch inhibition in cardiac neural crest impairs Jagged1 mRNA expression and results in deficient smooth muscle differentiation and resultant aortic arch artery defects. Ex vivo, Jagged1 ligand activates Notch in neural crest explants and results in activation of Jagged1 mRNA, a response that is blocked by Notch inhibition. We examine 15 evolutionary conserved regions within the Jagged1 genomic locus and identify a single Notch response element within the second intron. This element contains a functional Rbp-J binding site demonstrated by luciferase reporter and chromatin immunoprecipitation assays and is sufficient to recapitulate aortic arch artery expression of Jagged1 in transgenic mice. Loss of Jagged1 in neural crest impairs vascular smooth muscle differentiation and results in aortic arch artery defects. CONCLUSIONS: Taken together, these results provide a mechanism for lateral induction that allows for a multi-layered smooth muscle wall to form around a nascent arterial endothelial tube and identify Jagged1 as a direct Notch target.