The molecular pathways that link nutritional cues to developmental programs are poorly understood. Caenorhabditis elegans hatchlings arrest in a dormant state termed "L1 diapause" until food is supplied. However, little is known about what signal transduction pathways mediate nutritional status to control arrest and initiation of postembryonic development. We report that C. elegans embryonic germline precursors undergo G2 arrest with condensed chromosomes and remain arrested throughout L1 diapause. Loss of the DAF-18/PTEN tumor suppressor bypasses this arrest, resulting in inappropriate germline growth dependent on the AGE-1/PI-3 and AKT-1/PKB kinases. DAF-18 also regulates an insulin/IGF-like pathway essential for longevity and dauer larva formation. However, DAF-16/FoxO, which is repressed by this pathway, is not required for germline arrest in L1 diapause. Thus, these findings indicate that quiescence of germline development during L1 diapause is not a passive consequence of nutrient deprivation, but rather is actively maintained by DAF-18 through a pathway distinct from that which regulates longevity and dauer formation.