Primers and nucleotide information in this study.

The signaling environment, or niche, often governs the initial difference in behavior of an adult stem cell and a derivative that initiates a path towards differentiation. The transition between an instructive stem cell niche and differentiation niche must generally have single-cell resolution, suggesting that multiple mechanisms might be necessary to sharpen the transition. Here, we examined the Drosophila ovary and found that Cap cells, which are key constituents of the germline stem cell (GSC) niche, express a conserved microRNA (miR-124). Surprisingly, loss of miR-124 activity in Cap cells leads to a defect in differentiation of GSC derivatives. We present evidence that the direct functional target of miR-124 in Cap cells is the epidermal growth factor receptor (EGFR) and that failure to limit EGFR expression leads to the ectopic expression of a key anti-differentiation BMP signal in neighboring somatic escort cells (ECs), which constitute a differentiation niche. We further found that Notch signaling connects EFGR activity in Cap cells to BMP expression in ECs. We deduce that the stem cell niche communicates with the differentiation niche through a mechanism that begins with the selective expression of a specific microRNA and culminates in the suppression of the major anti-differentiation signal in neighboring cells, with the functionally important overall role of sharpening the spatial distinction between self-renewal and differentiation environments.