Mutations in TOO MANY MOUTHS (TMM), which encodes a receptor-like protein, cause stomatal patterning defects in Arabidopsis leaves but eliminate stomatal formation in stems. Stomatal development in wild-type and tmm stems was analyzed to define TMM function. Epidermal cells in young tmm stems underwent many asymmetric divisions characteristic of entry into the stomatal pathway. The resulting precursor cells, meristemoids, appropriately expressed cell fate markers such as pTMM:GFP. However, instead of progressing developmentally by forming a guard mother cell, the meristemoids arrested, dedifferentiated, and enlarged. Thus asymmetric divisions are necessary but not sufficient for stomatal formation in stems, and TMM promotes the fate and developmental progression of early precursor cells. Comparable developmental and mature stomatal phenotypes were also found in tmm hypocotyls and in the proximal flower stalk. TMM is also a positive regulator of meristemoid division in leaves suggesting that TMM generally promotes meristemoid activity. Our results are consistent with a model in which TMM interacts with other proteins to modulate precursor cell fate and progression in an organ and domain-specific manner. Finally, the consistent presence of a small number of dedifferentiated meristemoids in mature wild-type stems suggests that precursor cell arrest is a normal feature of Arabidopsis stem development.