Signal transducer and activator of transcription (STAT) proteins are transcription factors that play a critical role in the response of a variety of eukaryotic cells to cytokine and growth factor signaling. In Drosophila, the STAT homolog encoded by the stat92E gene is required for the normal development of multiple tissues, including embryonic segmentation, imaginal discs, blood cells, male germ cells, and sex determination. We used multiple approaches to study the role of stat92E in oogenesis. Stat92E RNA expression is strongest in the differentiating follicle cells in the germarium, as determined by in situ hybridization. We generated an ethylmethane sulfonate-induced, temperature-sensitive allele, stat92E(F), in which the mutant protein contains a P506S substitution, located in the DNA binding domain. At the restrictive temperature, mutant females are sterile. Mutant ovaries have multiple defects, including fused egg chambers and an absence of interfollicular stalks cells and functional polar follicle cells. An analysis of mosaic clones, using an apparent null stat92E allele, indicates that Stat92E is required in the polar/stalk follicle cell lineage. We conclude that stat92E is necessary for the early differentiation of follicle cells and for proper germ line cell encapsulation during Drosophila oogenesis.