Adult neural stem cells reside in a specialized niche in the subventricular zone (SVZ). Throughout life they give rise to adult-born neurons in the olfactory bulb (OB), thus contributing to neural plasticity and pattern discrimination. Here, we show that the neurovascular protein EGFL7 is secreted by endothelial cells and neural stem cells (NSCs) of the SVZ to shape the vascular stem-cell niche. Loss of EGFL7 causes an accumulation of activated NSCs, which display enhanced activity and re-entry into the cell cycle. EGFL7 pushes activated NSCs towards quiescence and neuronal progeny towards differentiation. This is achieved by promoting Dll4-induced Notch signalling at the blood vessel-stem cell interface. Fewer inhibitory neurons form in the OB of EGFL7-knockout mice, which increases the absolute signal conducted from the mitral cell layer of the OB but decreases neuronal network synchronicity. Consequently, EGFL7-knockout mice display severe physiological defects in olfactory behaviour and perception.