Drosophila neuroblasts and ovarian stem cells are well characterized models for stem cell biology. In both cell types, one daughter cell self-renews continuously while the other undergoes a limited number of divisions, stops to proliferate mitotically and differentiates. Whereas neuroblasts segregate the Trim-NHL (tripartite motif and Ncl-1, HT2A and Lin-41 domain)-containing protein Brain tumour (Brat) into one of the two daughter cells, ovarian stem cells are regulated by an extracellular signal from the surrounding stem cell niche. After division, one daughter cell looses niche contact. It undergoes 4 transit-amplifying divisions to form a cyst of 16 interconnected cells that reduce their rate of growth and stop to proliferate mitotically. Here we show that the Trim-NHL protein Mei-P26 (refs 7, 8) restricts growth and proliferation in the ovarian stem cell lineage. Mei-P26 expression is low in stem cells but is strongly induced in 16-cell cysts. In mei-P26 mutants, transit-amplifying cells are larger and proliferate indefinitely leading to the formation of an ovarian tumour. Like brat, mei-P26 regulates nucleolar size and can induce differentiation in Drosophila neuroblasts, suggesting that these genes act through the same pathway. We identify Argonaute-1, a component of the RISC complex, as a common binding partner of Brat and Mei-P26, and show that Mei-P26 acts by inhibiting the microRNA pathway. Mei-P26 and Brat have a similar domain composition that is also found in other tumour suppressors and might be a defining property of a new family of microRNA regulators that act specifically in stem cell lineages.