In the epithelial follicle stem cells (FSCs) of the Drosophila ovary, Epidermal Growth Factor Receptor (EGFR) signaling promotes self-renewal whereas Notch signaling promotes differentiation of the prefollicle cell (pFC) daughters. We have identified two proteins, Six4 and Groucho (Gro), that link the activity of these two pathways to regulate the earliest cell fate decision in the FSC lineage. Our data indicate that Six4 and Gro promote differentiation toward the polar cell fate by promoting Notch pathway activity. This activity of Gro is antagonized by EGFR signaling, which inhibits Gro-dependent repression via p-ERK mediated phosphorylation. We found that the phosphorylated form of Gro persists in newly formed pFCs, which may delay differentiation and provide these cells with a temporary memory of the EGFR signal. Collectively, these findings demonstrate that phosphorylated Gro labels a transition state in the FSC lineage and describe the interplay between Notch and EGFR signaling that governs the differentiation processes during this period.