During inner ear development, Notch exhibits two modes of operation: lateral induction, which is associated with prosensory specification, and lateral inhibition, which is involved in hair cell determination. These mechanisms depend respectively on two different ligands, jagged 1 (Jag1) and delta 1 (Dl1), that rely on a common signaling cascade initiated after Notch activation. In the chicken otocyst, expression of Jag1 and the Notch target Hey1 correlates well with lateral induction, whereas both Jag1 and Dl1 are expressed during lateral inhibition, as are Notch targets Hey1 and Hes5. Here, we show that Jag1 drives lower levels of Notch activity than Dl1, which results in the differential expression of Hey1 and Hes5. In addition, Jag1 interferes with the ability of Dl1 to elicit high levels of Notch activity. Modeling the sensory epithelium when the two ligands are expressed together shows that ligand regulation, differential signaling strength and ligand competition are crucial to allow the two modes of operation and for establishing the alternate pattern of hair cells and supporting cells. Jag1, while driving lateral induction on its own, facilitates patterning by lateral inhibition in the presence of Dl1. This novel behavior emerges from Jag1 acting as a competitive inhibitor of Dl1 for Notch signaling. Both modeling and experiments show that hair cell patterning is very robust. The model suggests that autoactivation of proneural factor Atoh1, upstream of Dl1, is a fundamental component for robustness. The results stress the importance of the levels of Notch signaling and ligand competition for Notch function.