Stem cell niches are specific regulatory microenvironments formed by neighboring stromal cells. Owing to difficulties in identifying stem cells and their niches in many systems, mechanisms that control niche formation and stem cell recruitment remain elusive. In the Drosophila ovary, two or three germline stem cells (GSCs) have recently been shown to reside in a niche, in which terminal filaments (TFs) and cap cells are two major components. We report that signals from newly formed niches promote clonal expansion of GSCs during niche formation in the Drosophila ovary. After the formation of TFs and cap cells, anterior primordial germ cells (PGCs) adjacent to TFs/cap cells can develop into GSCs at the early pupal stage while the rest directly differentiate. The anterior PGCs are very mitotically active and exhibit two division patterns with respect to cap cells. One of these patterns generates two daughters that both contact cap cells and potentially become GSCs. Our lineage tracing study confirms that one PGC can generate two or three GSCs to occupy a whole niche ('clonal expansion'). decapentaplegic (dpp), the Drosophila homolog of human bone morphogenetic protein 2/4, is expressed in anterior somatic cells of the gonad, including TFs/cap cells. dpp overexpression promotes PGC proliferation and causes the accumulation of more PGCs in the gonad. A single PGC mutant for thick veins, encoding an essential dpp receptor, loses the ability to clonally populate a niche. Therefore, dpp is probably one of the mitotic signals that promote the clonal expansion of GSCs in a niche. This study also suggests that signals from newly formed niche cells are important for expanding stem cells and populating niches.