During Drosophila oogenesis two distinct stem cell populations produce either germline cysts or the somatic cells that surround each cyst and separate each formed follicle. From analyzing daughterless (da) loss-of-function, overexpression and genetic interaction phenotypes, we have identified several specific requirements for da(+) in somatic cells during follicle formation. First, da is a critical regulator of somatic cell proliferation. Also, da is required for the complete differentiation of polar and stalk cells, and elevated da levels can even drive the convergence and extension that is characteristic of interfollicular stalks. Finally, da is a genetic regulator of an early checkpoint for germline cyst progression: Loss of da function inhibits normally occurring apoptosis of germline cysts at the region 2a/2b boundary of the germarium, while da overexpression leads to postmitotic cyst degradation. Collectively, these da functions govern the abundance and diversity of somatic cells as they coordinate with germline cysts to form functional follicles.