Condensins are multi-subunit complexes essential for chromosome organization. Although condensin subunits are highly expressed in the niche formed by inner germarial sheath (IGS) cells in the Drosophila ovary, their functions in stem cell regulation remain unknown. Here, we show that condensin II has critical functions in relatively quiescent IGS cells to control stepwise germline stem cell progeny development. Niche-specific knockdown of condensin II components causes defects in germline stem cell self-renewal, cystoblast differentiation, meiotic double-strand break formation, and oocyte specification and also disrupts the long cellular processes of niche cells vital for differentiation. Hi-C analysis indicates that the condensin II loss dramatically changes the organization and boundary insulation strength of topologically associating domains (TADs) but not chromatin compartments. Integrated Hi-C and RNA sequencing data analysis has also identified a subset of neural genes whose expression is coordinately altered within the same TAD. Finally, IGS-specific knockdown of these condensin II-regulated neuronal genes can collectively recapitulate the defects caused by knocking down condensin II. Our study provides novel insight into how condensin II in the niche controls stem cell lineage development by maintaining 3D genome architecture and niche cell identity, which may have implications for stem cell regulation in higher organisms.