To study how natural allelic variation explains quantitative developmental system variation, we characterized natural differences in germ stem cell niche activity, measured as progenitor zone (PZ) size, between twoCaenorhabditis elegansisolates. Linkage mapping yielded candidate loci on chromosomes II and V, and we found that the isolate with a smaller PZ size harbours a 148 bp promoter deletion in the Notch ligand,lag-2/Delta, a central signal promoting germ stem cell fate. As predicted, introducing this deletion into the isolate with a large PZ resulted in a smaller PZ size. Unexpectedly, restoring the deleted ancestral sequence in the isolate with a smaller PZ did not increase—but instead further reduced—PZ size. These seemingly contradictory phenotypic effects are explained by epistatic interactions between thelag-2/Deltapromoter, the chromosome II locus, and additional background loci. These results provide first insights into the quantitative genetic architecture regulating an animal stem cell system.