Stem cells are thought to occupy special local environments, or niches, established by neighboring cells that give them the capability for self-renewal. Each ovariole in the Drosophila ovary contains two germline stem cells surrounded by a group of differentiated somatic cells that express hedgehog and wingless. Here we show that the BMP2/4 homolog decapentaplegic (dpp) is specifically required to maintain female germline stem cells and promote their division. Overexpression of dpp blocks germline stem cell differentiation. Conversely, mutations in dpp or its receptor (saxophone) accelerate stem cell loss and retard stem cell division. We constructed mutant germline stem cell clones to show that the dpp signal is directly received by germline stem cells. Thus, dpp signaling helps define a niche that controls germline stem cell proliferation.