The piRNA pathway plays an important role in maintaining genome stability in the germ line by silencing transposable elements (TEs) from fly to mammals. As a highly conserved piRNA pathway component, Piwi is widely expressed in both germ cells and somatic cells in the Drosophila ovary and is required for piRNA production in both cell types. In addition to its known role in somatic cap cells to maintain germline stem cells (GSCs), this study has demonstrated that Piwi has novel functions in somatic cells and germ cells of the Drosophila ovary to promote germ cell differentiation. Piwi knockdown in escort cells causes a reduction in escort cell (EC) number and accumulation of undifferentiated germ cells, some of which show active BMP signaling, indicating that Piwi is required to maintain ECs and promote germ cell differentiation. Simultaneous knockdown of dpp, encoding a BMP, in ECs can partially rescue the germ cell differentiation defect, indicating that Piwi is required in ECs to repress dpp. Consistent with its key role in piRNA production, TE transcripts increase significantly and DNA damage is also elevated in the piwi knockdown somatic cells. Germ cell-specific knockdown of piwi surprisingly causes depletion of germ cells before adulthood, suggesting that Piwi might control primordial germ cell maintenance or GSC establishment. Finally, Piwi inactivation in the germ line of the adult ovary leads to gradual GSC loss and germ cell differentiation defects, indicating the intrinsic role of Piwi in adult GSC maintenance and differentiation. This study has revealed new germline requirement of Piwi in controlling GSC maintenance and lineage differentiation as well as its new somatic function in promoting germ cell differentiation. Therefore, Piwi is required in multiple cell types to control GSC lineage development in the Drosophila ovary.