Establishment and maintenance of functional stem cells is critical for organ development and tissue homeostasis. Little is known about the mechanisms underlying stem establishment during organogenesis. Drosophila testes are among the most thoroughly characterized systems for studying stem cell behavior, with germline stem cells (GSCs) and somatic cyst stem cells (CySCs) cohabiting a discrete stem cell niche at the testis apex. GSCs and CySCs are arrayed around hub cells that also comprise the niche and communication between hub cells, GSCs, and CySCs regulates the balance between stem cell maintenance and differentiation. Recent data has shown that functional, asymmetrically dividing GSCs are first established at ~23 hrs after egg laying during Drosophila testis morphogenesis (Sheng et al., 2009). This process correlates with coalescence of the hub, but development of CySCs from somatic gonadal precursors (SGPs) was not examined. Here, we show that functional CySCs are present at the time of GSC establishment, and that Jak-STAT signaling is necessary and sufficient for CySC maintenance shortly thereafter. Furthermore, hyper-activation of Jak in CySCs promotes expansion of the GSC population, while ectopic Jak activation in the germline induces GSC gene expression in GSC daughter cells but does not prevent spermatogenic differentiation. Together, these observations indicate that, similar to adult testes, Jak-STAT signaling from the hub acts on both GSCs and CySC to regulate their development and differentiation, and that additional signaling from CySCs to the GSCs play a dominant role in controlling GSC maintenance during niche formation.