Coordinating cell differentiation with cell growth and division is critical for the successful development, homeostasis, and regeneration of multicellular tissues. Here we use bristle patterning in the fly notum as a model system to explore the regulatory and functional coupling of cell cycle progression and cell fate decision-making. The pattern of bristles and intervening epithelial cells (ECs) becomes established through Notch-mediated lateral inhibition during G2-phase of the cell cycle, as neighbouring cells physically interact with each other via lateral contacts and/or basal protrusions. Since Notch signalling controls cell division timing downstream of Cdc25, ECs in lateral contact with a Delta-expressing cell experience higher levels of Notch signalling and divide first, followed by more distant neighbours, and lastly Delta-expressing cells. Conversely, mitotic entry and cell division makes ECs refractory to lateral inhibition signalling, fixing their fate. Using a combination of experiments and computational modeling, we show that this reciprocal relationship between Notch signalling and cell cycle progression acts like a developmental clock, providing a delimited window of time during which cells decide their fate, ensuring efficient and orderly bristle patterning.