Adherens junctions (AJs) create spatially and mechanically discrete microdomains at the interfaces of cells. Using a mechanogenetic platform that generates artificial AJs with controlled protein localization, clustering, and mechanical loading, we report 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-µdomain) to initialize receptor activation. Conversely, membrane microdomains within AJs exclusively serve to coordinate regulated intramembrane proteolysis (RIP-µdomain). They do so by concentrating γ-secretase and primed receptors while excluding full-length Notch. AJs induce these functionally distinct microdomains by means of cholesterol-dependent γ-secretase recruitment and size-dependent protein segregation. By excluding full-length Notch from RIP-µdomains, AJs prevents inappropriate enzyme-substrate interactions and suppresses 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 differentiative expansion of ventricular zone-neural progenitor cells in vivo and more broadly regulates the proteolysis of large cell-surface receptors like 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.