Understanding how cell fate decisions are regulated is a central question in stem cell biology. Recent studies have demonstrated that intracellular pH (pHi) dynamics contribute to this process. Indeed, the pHi of cells within a tissue is not simply a consequence of chemical reactions in the cytoplasm and other cellular activity, but is actively maintained at a specific setpoint in each cell type. We found previously that the pHi of cells in the follicle stem cell (FSC) lineage in the Drosophila ovary increases progressively during differentiation from an average of 6.8 in the FSCs, to 7.0 in newly produced daughter cells, to 7.3 in more differentiated cells. Two major regulators of pHi in this lineage are Drosophila sodium-proton exchanger 2 (dNhe2) and a previously uncharacterized gene, CG8177, that is homologous to mammalian anion exchanger 2 (AE2). Based on this homology, we named the gene ae2. Here, we generated null alleles of ae2 and found that homozygous mutant flies are viable but have severe defects in ovary development and adult oogenesis. Specifically, we find that ae2 null flies have smaller ovaries, reduced fertility, and impaired follicle formation. In addition, we find that the follicle formation defect can be suppressed by a decrease in dNhe2 copy number and enhanced by the overexpression of dNhe2, suggesting that this phenotype is due to the dysregulation of pHi. These findings support the emerging idea that pHi dynamics regulate cell fate decisions and our studies provide new genetic tools to investigate the mechanisms by which this occurs.