The C. elegans germline recapitulates mammalian stem cell niches and provides an effective platform for investigating key aspects of stem cell biology. However, the molecular and physiological requirements for germline stem cell homeostasis remain largely elusive. Here, we report that mitochondrial biogenesis and function are crucial for germline stem cell identity. We show that general transcription activity in germline mitochondria is highly compartmentalized, and determines mitochondrial maturation. RPOM-1, the mitochondrial RNA polymerase, is differentially expressed as germ nuclei progress from the distal to the proximal gonad arm to form oocytes. Mitochondria undergo changes from globular to tubular morphology and become polarized, as they approach the proximal gonad arm. Notably, this mitochondrial maturation trajectory is evolutionarily conserved. We find that a similar transition and temporal mitochondrial RNA polymerase expression profile characterizes differentiation of mammalian stem cells. In C. elegans, ATP, and ROS production increases sharply during maturation. Impaired mitochondrial bioenergetics causes gonad syncytium tumor formation by disrupting the balance between mitosis and differentiation to oocytes, which results in a marked reduction of fecundity. Consequently, compensatory apoptosis is induced in the germline. Sperm-derived signals promote mitochondrial maturation and proper germ cell differentiation via the MEK/ERK kinase pathway. Germ cell fate decisions are determined by a crosstalk between Insulin/IGF-1 and TGF-β signaling, mitochondria and protein synthesis. Our findings demonstrate that mitochondrial transcription activity determines a shift in mitochondrial bioenergetics, which in turn regulates germline stem cell survival and differentiation. Perturbation of mitochondrial transcription hinders proper germ cell differentiation and causes germline tumor development.