Limb development membrane protein-1 (LMBR1)/lipocalin-interacting membrane receptor (LIMR)-type proteins are putative nine-transmembrane receptors that are evolutionarily conserved across metazoans. However, their biological function is unknown. Here, we show that the fly family member Lilipod (Lili) is required for germ-line stem cell (GSC) self-renewal in the Drosophila ovary where it enhances bone morphogenetic protein (BMP) signaling. lili mutant GSCs are lost through differentiation, and display reduced levels of the Dpp transducer pMad and precocious activation of the master differentiation factor bam. Conversely, overexpressed Lili induces supernumerary pMad-positive bamP-GFP-negative GSCs. Interestingly, differentiation of lili mutant GSCs is bam-dependent; however, its effect on pMad is not. Thus, although it promotes stem cell self-renewal by repressing a bam-dependent process, Lilipod enhances transduction of the Dpp signal independently of its suppression of differentiation. In addition, because Lili is still required by a ligand-independent BMP receptor, its function likely occurs between receptor activation and pMad phosphorylation within the signaling cascade. This first, to our knowledge, in vivo characterization of a LMBR1/LIMR-type protein in a genetic model reveals an important role in modulating BMP signaling during the asymmetric division of an adult stem cell population and in other BMP signaling contexts.