Vascular cell interactions mediated through cell surface receptors play a critical role in the assembly and maintenance of blood vessels. These signaling interactions transmit important information that alters cell function through changes in protein dynamics and gene expression. Here, we identify syndecan-2 (SDC2) as a gene whose expression is induced in smooth muscle cells upon physical contact with endothelial cells. Syndecan-2 is a heparan sulfate proteoglycan that is known to be important for developmental processes, including angiogenesis. Our results show that endothelial cells induce mRNA expression of syndecan-2 in smooth muscle cells by activating Notch receptor signaling. Both NOTCH2 and NOTCH3 contribute to the increased expression of syndecan-2 and are themselves sufficient to promote its expression independent of endothelial cells. Syndecan family members serve as coreceptors for signaling molecules, and interestingly, our data show that syndecan-2 regulates Notch signaling and physically interacts with NOTCH3. Notch activity is attenuated in smooth muscle cells made deficient in syndecan-2, and this specifically prevents expression of the differentiation marker smooth muscle a-actin. These results show a novel mechanism in which Notch receptors control their own activity by inducing the expression of syndecan-2, which then acts to propagate Notch signaling by direct receptor interaction.