Adherens junctions (AJs) create spatially, chemically and mechanically discrete microdomains at cellular interfaces. Here, using a mechanogenetic platform that generates artificial AJs with controlled protein localization, clustering and mechanical loading, we find that AJs also organize proteolytic hotspots for γ-secretase with a spatially regulated substrate selectivity that is critical in the processing of Notch and other transmembrane proteins. Membrane microdomains outside of AJs exclusively organize Notch ligand–receptor engagement (LRE microdomains) to initiate receptor activation. Conversely, membrane microdomains within AJs exclusively serve to coordinate regulated intramembrane proteolysis (RIP microdomains). They do so by concentrating γ-secretase and primed receptors while excluding full-length Notch. AJs induce these functionally distinct microdomains by means of lipid-dependent γ-secretase recruitment and size-dependent protein segregation. By excluding full-length Notch from RIP microdomains, AJs prevent inappropriate enzyme–substrate interactions and suppress spurious Notch activation. Ligand-induced ectodomain shedding eliminates size-dependent segregation, releasing Notch to translocate into AJs for processing by γ-secretase. This mechanism directs radial differentiation of ventricular zone-neural progenitor cells in vivo and more broadly regulates the proteolysis of other large cell-surface receptors such as amyloid precursor protein. These findings suggest an unprecedented role of AJs in creating size-selective spatial switches that choreograph γ-secretase processing of multiple transmembrane proteins regulating development, homeostasis and disease.