The role of the Notch pathway during the lateral inhibition that underlies binary cell fate choice is extensively studied, but the context specificity that generates diverse outcomes is less well understood. In the peripheral nervous system of Drosophila melanogaster, differential Notch signaling between cells of the proneural cluster orchestrates sensory organ specification. Here we report functional analysis of Drosophila Ataxin 2-binding protein 1 (A2BP1) during this process. Its human ortholog is linked to type 2 spinocerebellar ataxia and other complex neuronal disorders. Downregulation of Drosophila A2BP1 in the proneural cluster increases adult sensory bristle number, whereas its overexpression results in loss of bristles. We show that A2BP1 regulates sensory organ specification by potentiating Notch signaling. Supporting its direct involvement, biochemical analysis shows that A2BP1 is part of the Suppressor of Hairless [Su(H)] complex in the presence and absence of Notch. However, in the absence of Notch signaling, the A2BP1 interacting fraction of Su(H) does not associate with the repressor proteins Groucho and CtBP. We propose a model explaining the requirement of A2BP1 as a positive regulator of context-specific Notch activity.