A healthy diet improves adult stem cell function and delays diseases such as cancer, heart disease, and neurodegeneration. Defining molecular mechanisms by which nutrients dictate stem cell behavior is a key step toward understanding the role of diet in tissue homeostasis. In this paper, we elucidate the mechanism by which dietary cholesterol controls epithelial follicle stem cell (FSC) proliferation in the fly ovary. In nutrient-restricted flies, the transmembrane protein Boi sequesters Hedgehog (Hh) ligand at the surface of Hh-producing cells within the ovary, limiting FSC proliferation. Upon feeding, dietary cholesterol stimulates S6 kinase-mediated phosphorylation of the Boi cytoplasmic domain, triggering Hh release and FSC proliferation. This mechanism enables a rapid, tissue-specific response to nutritional changes, tailoring stem cell divisions and egg production to environmental conditions sufficient for progeny survival. If conserved in other systems, this mechanism will likely have important implications for studies on molecular control of stem cell function, in which the benefits of low calorie and low cholesterol diets are beginning to emerge.