Extrinsic cues from the niche are known to regulate adult stem cell self-renewal versus differentiation. Here, we report that an aminopeptidase Slamdance (Sda) acts in the Drosophila testicular niche to maintain germline stem cells (GSCs) and regulate progenitor germ cell dedifferentiation. Mutations in sda lead to dramatic testicular niche deterioration and stem cell loss. Recombinant Sda has specific aminopeptidase activity in vitro, and the in vivo function of Sda requires an intact aminopeptidase domain. Sda is required for accumulation of mature DE-cadherin, and overexpression of DE-cadherin rescues most sda mutant phenotypes, suggesting that DE-cadherin is an important target of Sda. Finally, Sda is both necessary and sufficient to promote dedifferentiation during aging and recovery from genetically manipulated depletion of GSCs. Together, our results suggest that a niche factor promotes both stem cell maintenance and progenitor cell dedifferentiation.