Stem cell competition could select the fittest stem cells and potentially control tumorigenesis. However, little is known about the underlying molecular mechanisms. Here, we find that ectopic Decapentaplegic (Dpp) signal activation by expressing a constitutively active form of Thickveins (TkvCA) in cyst stem cells (CySCs) leads to competition between CySCs and germline stem cells (GSCs) for niche occupancy and GSC loss. GSCs are displaced from the niche and undergo differentiation. Interestingly, we find that induction of TkvCA results in elevated expression of vein, which further activates Epidermal Growth Factor Receptor (EGFR) signaling in CySCs to promote their proliferation and compete GSCs out of the niche. Our findings elucidate the important role of Dpp signaling in regulating stem cell competition and tumorigenesis, which could be shed light on tumorigenesis and cancer treatment in mammals.