The synovium is a mesenchymal tissue composed mainly of fibroblasts, with a lining and sublining that surround the joints. In rheumatoid arthritis the synovial tissue undergoes marked hyperplasia, becomes inflamed and invasive, and destroys the joint1,2. It has recently been shown that a subset of fibroblasts in the sublining undergoes a major expansion in rheumatoid arthritis that is linked to disease activity3–5; however, the molecular mechanism by which these fibroblasts differentiate and expand is unknown. Here we identify a critical role for NOTCH3 signalling in the differentiation of perivascular and sublining fibroblasts that express CD90 (encoded by THY1). Using single-cell RNA sequencing and synovial tissue organoids, we found that NOTCH3 signalling drives both transcriptional and spatial gradients—emanating from vascular endothelial cells outwards—in fibroblasts. In active rheumatoid arthritis, NOTCH3 and Notch target genes are markedly upregulated in synovial fibroblasts. In mice, the genetic deletion of Notch3 or the blockade of NOTCH3 signalling attenuates inflammation and prevents joint damage in inflammatory arthritis. Our results indicate that synovial fibroblasts exhibit a positional identity that is regulated by endothelium-derived Notch signalling, and that this stromal crosstalk pathway underlies inflammation and pathology in inflammatory arthritis.