During Drosophila mid-oogenesis, follicular epithelial cells switch from the mitotic cycle to the specialized endocycle in which the M phase is skipped. The switch, along with cell differentiation in follicle cells, is induced by Notch signaling. We show that the homeodomain gene cut functions as a linker between Notch and genes that are involved in cell-cycle progression. Cut was expressed in proliferating follicle cells but not in cells in the endocycle. Downregulation of Cut expression was controlled by the Notch pathway and was essential for follicle cells to differentiate and to enter the endocycle properly. cut-mutant follicle cells entered the endocycle and differentiated prematurely in a cell-autonomous manner. By contrast, prolonged expression of Cut caused defects in the mitotic cycle/endocycle switch. These cells continued to express an essential mitotic cyclin, Cyclin A, which is normally degraded by the Fizzy-related-APC/C ubiquitin proteosome system during the endocycle. Cut promoted Cyclin A expression by negatively regulating Fizzy-related. Our data suggest that Cut functions in regulating both cell differentiation and the cell cycle, and that downregulation of Cut by Notch contributes to the mitotic cycle/endocycle switch and cell differentiation in follicle cells.