Drosophila germline stem cells are regulated by the somatic microenvironment, or “niche,” which ensures that the stem cells can both self-renew and produce functional gametes throughout adult life. However, despite its prime importance, little is known about how niche formation is regulated during gonadal development. Here, we demonstrate that a receptor tyrosine kinase, Sevenless (Sev), is required to ensure that the niche develops in the anterior region of the male embryonic gonads. Sev is expressed in somatic cells within the posterior region of the gonads. Sev is activated by a ligand, Bride of sevenless (Boss), which is expressed by the germline, to prevent ectopic niche differentiation in the posterior gonadal somatic cells. Thus, we propose that signal transduction from germline to soma restricts expansion of the germline-stem-cell niche in the gonads.