In many animals, germline progenitors are kept undifferentiated to give rise to germline stem cells (GSCs), enabling continuous production of gametes throughout animal life. In the Drosophila ovary, GSCs arise from a subset of primordial germ cells (PGCs) that stay undifferentiated even after gametogenesis has started. How a certain population of PGCs is protected against differentiation, and the significance of its regulatory mechanisms on GSC establishment remain elusive. Here we show that epidermal growth factor receptor (Egfr) signaling in somatic stromal intermingled cells (ICs), activated by its ligand produced in germ cells, controls the size of the PGC pool at the onset of gametogenesis. Egfr signaling in ICs limits the number of cells that express the heparan sulfate proteoglycan Dally, which is required for the movement and stability of the locally-produced stromal morphogen, Decapentaplegic (Dpp, a BMP2/4 homologue). Dpp is received by PGCs and maintains them in an undifferentiated state. Altering Egfr signaling levels changes the size of the PGC pool and affects the number of GSCs established during development. While excess GSC formation is compensated by the adult stage, insufficient GSC formation can lead to adult ovarioles that completely lack GSCs, suggesting that ensuring an absolute size of the PGC pool is crucial for the GSC system.