Division of a female Drosophila stem cell produces a daughter stem cell and a cystoblast. The cystoblast produces a syncytial cluster of 16 cells by precisely four mitotic divisions and incomplete cytokinesis. Mutations in genes required for cystoblast differentiation, such as bag-of-marbles, block syncytial cluster formation and produce a distinctive "tumorous" or hyperplastic germ cell phenotype. In this paper, we compare the oogenic phenotype of benign gonial cell neoplasm mutations to that of mutations in bam. The data indicate that, like bam, bgcn is required for cystoblast development and that germ cells lacking bgcn become trapped in a stem cell-like state. One indication that germ cells lacking bgcn cannot form cystoblasts is that bgcn stem cells resist genetic ablation by Bam misexpression. Misexpression of Bam eliminates wild-type stem cells, apparently by inducing them to divide as cystoblasts. bgcn stem cells remain active when Bam is misexpressed, probably because they cannot adopt the cystoblast fate. Bgcn activity is not required for Bam protein expression but is essential for the localization of Bam protein to the fusome. Together, the results suggest that Bam and Bgcn cooperatively regulate cystoblast differentiation by controlling localization of Bam protein to the fusome.