The Drosophila post-embryonic neuroblasts (pNBs) are neural stem cells that persist in the larval nervous system where they proliferate to produce neurons for the adult CNS. These pNBs provide a good model to investigate mechanisms regulating the maintenance and proliferation of stem cells. The transcription factor Grainyhead (Grh), which is required for morphogenesis of epidermal and tracheal cells, is also expressed in all pNBs. Here, we show that grh is essential for pNBs to adopt the stem cell programme appropriate to their position within the CNS. In grh mutants the abdominal pNBs produced more progeny while the thoracic pNBs, in contrast, divided less and produced fewer progeny than wild type. We investigated three candidates; the Neuroblast identify gene Castor, the signalling molecule Notch and the adhesion protein E-Cadherin, to determine whether they could mediate these effects. Neither Castor nor Notch fulfilled the criteria for intermediaries, and in particular Notch activity was found to be dispensable for the normal proliferation and survival of the pNBs. In contrast E-Cadherin, which has been shown to regulate pNB proliferation, was present at greatly reduced levels in the grh mutant pNBs. Furthermore, ectopic expression of Grh was sufficient to promote ectopic E-Cadherin and two conserved Grh-binding sites were identified in the E-Cadherin/shotgun flanking sequences, arguing that this gene is a downstream target. Thus one way Grh could regulate pNBs is through expression of E-cadherin, a protein that is thought to mediate interactions with the glial niche.