Land plants evolved a long-distance transport system of water and nutrients composed of the xylem and phloem, both of which are generated from the procambium- and cambium-comprising vascular stem cells. However, little is known about the molecular mechanism of cell communication governing xylem-phloem patterning. Here, we show that a dodecapeptide (HEVHypSGHypNPISN; Hyp, 4-hydroxyproline), TDIF (tracheary element differentiation inhibitory factor), is secreted from the phloem and suppresses the differentiation of vascular stem cells into xylem cells through a leucine-rich repeat receptor-like kinase (LRR-RLK). TDIF binds in vitro specifically to the LRR-RLK, designated TDR (putative TDIF receptor), whose expression is restricted to procambial cells. However, the combined analysis of TDIF with a specific antibody and the expression profiles of the promoters of two genes encoding TDIF revealed that TDIF is synthesized mainly in, and secreted from, the phloem and its neighboring cells. The observation that TDIF is capable of promoting proliferation of procambial cells while suppressing xylem differentiation suggests that this small peptide functions as a phloem-derived, non-cell-autonomous signal that controls stem cell fate in the procambium. Our results indicate that we have discovered a cell communication system governing phloem-xylem cross-talk.