The long-term goal of our research is to address fundamental questions in stem cell biology: how quantity, quality, and activity of stem cells are precisely controlled in vivo. Stem cells are defined by their unique potential to self-renew and to differentiate into mature cell types, which support normal development and maintain tissue homeostasis. Stem cells typically reside in specialized microenvironments called ‘niches’ that support their ability to self-renew and to retain the characteristics of a stem cell. The niche is usually composed of supporting niche cells, extracellular substrates, and signaling molecules that control stem cell activity. For the future advancement of regenerative medicine and the development of novel cancer therapies, it is critical to understand the molecular basis underlying stem cell control by the niche. To understand fundamental principles of stem cell regulation in the extracellular environment, we focus on the role of heparan sulfate proteoglycans (HSPGs) in stem cell control using the genetically tractable model organism Drosophila. HSPGs are a special type of carbohydrate-modified proteins that play an essential role in signaling and distribution of various growth factors, including (but not limited to) bone morphogenetic proteins, Wnt/Wingless, and Hedgehog. Genetic studies of Drosophila stem cells, with sophisticated cell lineage tracing techniques, have helped define basic principles of stem cell biology. Using powerful Drosophila stem cell model systems, we seek to elucidate the cellular and molecular basis for poorly understood stem cell behaviors, including stem cell competition, replacement, and tissue regeneration.