Activation of the FOXO transcription factor DAF-16 by reduced insulin/IGF signaling (IIS) is considered to be beneficial in C. elegans due to its ability to extend lifespan and to enhance stress resistance. In the germline, cell-autonomous DAF-16 activity prevents stem cell proliferation, thus acting tumor-suppressive. In contrast, hypodermal DAF-16 causes a tumorous germline phenotype characterized by hyperproliferation of the germline stem cells and rupture of the adjacent basement membrane. Here we show that cross-talk between DAF-16 and the transforming growth factor ß (TGFß)/bone morphogenic protein (BMP) signaling pathway causes germline hyperplasia and results in disruption of the basement membrane. In addition to activating MADM/NRBP/hpo-11 gene alone, DAF-16 also directly interacts with both R-SMAD proteins SMA-2 and SMA-3 in the nucleus to regulate the expression of mTORC1 pathway. Knocking-down of BMP genes or each of the four target genes in the hypodermis was sufficient to inhibit germline proliferation, indicating a cell-non-autonomously controlled regulation of stem cell proliferation by somatic tissues. We propose the existence of two antagonistic DAF-16/FOXO functions, a cell-proliferative somatic and an anti-proliferative germline activity. Whereas germline hyperplasia under reduced IIS is inhibited by DAF-16 cell-autonomously, activation of somatic DAF-16 in the presence of active IIS promotes germline proliferation and eventually induces tumor-like germline growth. In summary, our results suggest a novel pathway crosstalk of DAF-16 and TGF-ß/BMP that can modulate mTORC1 at the transcriptional level to cause stem-cell hyperproliferation. Such cell-type specific differences may help explaining why human FOXO activity is considered to be tumor-suppressive in most contexts, but may become oncogenic, e.g. in chronic and acute myeloid leukemia.