Tissue-specific stem cells and their niches are organized into functional units that respond to external cues in order to maintain organ homeostasis. Insulin and Target of rapamycin (Tor) signaling mediate external cues that control adult niches and stem cells. Whether these pathways play a role in the establishment of niche-stem cell units during organogenesis has been little explored. We show that during larval development both Insulin-like receptor (InR) and Tor participate in the establishment of ovarian niches and germline stem cells (GSCs) in Drosophila melanogaster. Tor and InR are required cell-autonomously for the proliferation of precursors for both somatic niches and GSCs. These pathways also promote the formation of terminal filaments (part of the somatic niche). Significantly, InR, but not Tor, signaling non-autonomously promotes primordial germ cell (PGC) differentiation. Somatic attenuation of the pathway retards PGC differentiation, whereas its activation results in their precocious differentiation. We also show that InR-mediated PGC differentiation is independent of somatic ecdysone signaling, but that further differentiation into cysts requires an ecdysone input. These results demonstrate that Tor and InR signaling actively participate in the formation of ovarian niches and stem cells by affecting both cell numbers and differentiation. The dual influence of Tor and InR on both somatic cells and PGCs ensures that these two cell populations develop coordinately. Our work further identifies a novel step in the regulation of germ cell differentiation by demonstrating that following bag of marbles expression, cyst formation requires an additional hormonal input.