Thymus function depends on the epithelial compartment of the thymic stroma. Cortical thymic epithelial cells (cTECs) regulate T cell lineage commitment and positive selection, while medullary (m) TECs impose central tolerance on the T cell repertoire. During thymus organogenesis, these functionally distinct sub-lineages are thought to arise from a common thymic epithelial progenitor cell (TEPC). However, the mechanisms controlling cTEC and mTEC production from the common TEPC are not understood. Here, we show that emergence of the earliest mTEC lineage-restricted progenitors requires active NOTCH signaling in progenitor TEC and that, once specified, further mTEC development is NOTCH independent. In addition, we demonstrate that persistent NOTCH activity favors maintenance of undifferentiated TEPCs at the expense of cTEC differentiation. Finally, we uncover a cross-regulatory relationship between NOTCH and FOXN1, a master regulator of TEC differentiation. These data establish NOTCH as a potent regulator of TEPC and mTEC fate during fetal thymus development, and are thus of high relevance to strategies aimed at generating/regenerating functional thymic tissue in vitro and in vivo.