Most metazoan cells have a short life span and thus are constantly reproduced from stem cells residing in adult tissues. A stem cell normally divides in an asymmetric fashion in that one daughter retains the stem cell properties to replenish the stem cell population while the other produces specialized progeny. The regulation of the stem cell fate decision is determined by intrinsic cues as well as external signals coming from the cellular microenvironment, or niche. Investigating fundamental questions, e.g. how stem cells function to maintain tissue homeostasis, how stem cells communicate with their microenvironment, and how cytophysical influences affect behavior of stem cell daughters, provides essential insights of general mechanisms that regulate metazoan development including growth, aging and regeneration, and also sheds light on clinical potential of stem-cell based tissue engineering and regenerative medicine. Gonads of Drosophila melanogaster have long been studied, which, along with the power of genetic, molecular, biochemical and cytological approaches, make gametogenesis in fruit flies attractive models to study stem cell and developmental biology related questions. In both of male and female fly gonads, germline cells are enclosed in cytoplasmic extensions from supporting somatic cells that serve as the germline cellular microenvironment. This intimate germline-soma interaction is critical for proliferation and differentiation of both lineages. Signaling pathways that regulate germline and soma development can be identified by virtue of viable and infertile mutations and RNA interference (RNAi). Chapter 1 reviews the role of stem cells in regeneration and homeostasis, the intercellular interaction between stem cells and their microenvironment, and Drosophila gonads and gametogenesis. Chapter 2 demonstrates that ecdysone signaling acts antagonistically to Epidermal Growth Factor (EGF) signaling in modulating cyst development in fly testes. Chapter 3 shows that the COP9 signalosome (CSN) is required for the expression of stem cell genes and maintenance of the germline microenvironment through different Cullin RING ubiquitin ligase (CRL) complexes in fly testes. Chapter 4 introduces a novel Drosophila specific gene, named comeback, that maintains cytoplasmic extensions of somatic support cells to regulate differentiation of germline stem cell (GSC) immediate daughter cells in fly ovaries.