Zinc finger E-box binding (ZEB) proteins ZEB1 and ZEB2 are transcription factors essential in transforming growth factor (TGF)-β-mediated senescence, epithelial to mesenchymal transition (EMT) and cancer stem cell function. ZEBs are negatively regulated by members of the miR-200 microRNA family, but precisely how tumor cells expressing ZEBs emerge during invasive growth remains unknown. Here we report that NOTCH3-mediated signaling prevents expansion of a unique subset of ZEB-expressing cells. ZEB expression was associated with the lack of cellular capability of undergoing NOTCH3-mediated squamous differentiation in human esophageal cells. Genetic inhibition of the Notch-mediated transcriptional activity by dominant-negative Mastermind-like1 (DNMAML1) prevented squamous differentiation and induction of Notch target genes including NOTCH3. Moreover, DNMAML1 enriched EMT competent cells exhibited robust upregulation of ZEBs, downregulation of the miR-200 family, and enhanced anchorage independent growth and tumor formation in nude mice. RNA interference (RNAi) experiments suggested the involvement of ZEBs in anchorage independent colony formation, invasion and TGF-β-mediated EMT. Invasive growth and impaired squamous differentiation was recapitulated upon Notch inhibition by DNMAML1 in organotypic 3D culture, a form of human tissue engineering. Together, our findings indicate that NOTCH3 is a key factor limiting the expansion of ZEB-expressing cells, providing novel mechanistic insights into the role of Notch signaling in the cell fate regulation and disease progression of squamous esophageal cancers.