ABSTRACT The Drosophila oocyte develops within a cyst of 16 germline cells interconnected by ring canals. Polarized, microtubule-based transport of unknown determinants is required for oocyte formation, but whether polarity is established during or after cyst formation is not clear. We have analyzed how polarity develops in stem cells and dividing cysts by following the growth of the fusome, a vesiculated cytoplasmic organelle. Our studies show that the fusome grows by a regular, polarized process throughout the stem cell and cyst cell cycles. Each polarization cycle begins in mitosis, when the fusome segregates to a single daughter cell of each pair. Following mitosis, a ‘plug’ of fusomal material forms in each nascent ring canal and gradually fuses with the pre-existing fusome. In stem cells, the ring canal is transient and closes down after the fusome is partitioned through it. In dividing cysts, as the fusome plugs move toward the pre-existing fusome, their associated ring canals also move, changing the geometry of the cyst. At the end of each cycle of cyst growth, the fusome remains asymmetrically distributed within the cyst; one of the two cells with four ring canals retains a bigger piece of fusome than any other cell, including the other cell with four ring canals. Based on these observations, we argue that the oocyte is specified at the first cyst division.