Development is typically studied as a continuous process under laboratory conditions, but wild animals often develop in variable and stressful environments. C. elegans larvae hatch in a developmentally arrested state (L1 arrest) and initiate post-embryonic development only in the presence of food (E. coli in lab). In contrast to the well-studied dauer arrest, L1 arrest occurs without morphological modification, although larvae in L1 arrest are more resistant to environmental stress than developing larvae . Consistent with its role in dauer formation and aging, we show that insulin/insulin-like growth factor (IGF) signaling regulates L1 arrest. daf-2 insulin/IGF receptor mutants have a constitutive-L1-arrest phenotype when fed and extended survival of L1 arrest when starved. Conversely, daf-16/FOXO mutants have a defective-arrest phenotype, failing to arrest development and dying rapidly when starved. We show that DAF-16 is required for transcription of the cyclin-dependent kinase inhibitor cki-1 in stem cells in response to starvation, accounting for the failure of daf-16/FOXO mutants to arrest cell division during L1 arrest. Other developmental events such as cell migration, cell fusion, and expression of the microRNA lin-4, a temporal regulator of post-embryonic development, are also observed in starved daf-16/FOXO mutants. These results suggest that DAF-16/FOXO promotes developmental arrest via transcriptional regulation of numerous target genes that control various aspects of development.