Ligand-based signaling can potentiate communication between neighboring cells and between cells separated by large distances. In the Drosophila melanogaster ovary, Wingless (Wg) promotes proliferation of follicle stem cells located ~50 µm or five cell diameters away from the Wg source. How Wg traverses this distance is unclear. We find that this long-range signaling requires Division abnormally delayed (Dally)-like (Dlp), a glypican known to extend the range of Wg ligand in the wing disc by binding Wg. Dlp-mediated spreading of Wg to follicle stem cells is opposed by the extracellular protease Mmp2, which cleaved Dlp in cell culture, triggering its relocalization such that Dlp no longer contacted Wg protein. Mmp2-deficient ovaries displayed increased Wg distribution, activity, and stem cell proliferation. Mmp2 protein is expressed in the same cells that produce Wg; thus, niche cells produce both a long-range stem cell proliferation factor and a negative regulator of its spreading. This system could allow for spatial control of Wg signaling to targets at different distances from the source.