Many tissues including blood, skin, gut and germ cells are continuously maintained by tissue stem cells. Under certain conditions, however, other organs can undergo repair using stem-cell-like progenitors generated by cell de-differentiation. Cell fates have been broadened experimentally, but mechanisms allowing de-differentiation to a stem cell state are poorly known. Germline stem cells begin to differentiate by forming interconnected germ cell cysts (cystocytes), and under certain conditions male mouse cystocytes have been postulated to revert into functional progenitors. Here we report that four- and eight-cell Drosophila germline cystocytes generated either in second instar larval ovaries or in adults over-producing the BMP4-like stem cell signal Decapentaplegic efficiently convert into single stem-like cells. These de-differentiated cells can develop into functional germline stem cells and support normal fertility. Our results show that cystocytes represent a relatively abundant source of regenerative precursors that might help replenish germ cells after depletion by genotoxic chemicals, radiation or normal ageing. More generally, Drosophila cystocytes now provide a system for studying de-differentiation and its potential as a source of functional stem cells.