Homeostasis of self-renewing small intestinal crypts results from neutral competition between Lgr5 stem cells, which are small cycling cells located at crypt bottoms(1,2). Lgr5 stem cells are interspersed between terminally differentiated Paneth cells that are known to produce bactericidal products such as lysozyme and cryptdins/defensins(3). Single Lgr5-expressing stem cells can be cultured to form long-lived, self-organizing crypt-villus organoids in the absence of non-epithelial niche cells(4). Here we find a close physical association of Lgr5 stem cells with Paneth cells in mice, both in vivo and in vitro. CD24(+) Paneth cells express EGF, TGF-alpha, Wnt3 and the Notch ligand Dll4, all essential signals for stem-cell maintenance in culture. Co-culturing of sorted stem cells with Paneth cells markedly improves organoid formation. This Paneth cell requirement can be substituted by a pulse of exogenous Wnt. Genetic removal of Paneth cells in vivo results in the concomitant loss of Lgr5 stem cells. In colon crypts, CD24(+) cells residing between Lgr5 stem cells may represent the Paneth cell equivalents. We conclude that Lgr5 stem cells compete for essential niche signals provided by a specialized daughter cell, the Paneth cell.