Quiescent neural stem cells (NSCs) in the adult brain are regenerative cells that could be activated therapeutically to repair damage. It is becoming apparent that quiescent NSCs exhibit heterogeneity in their propensity for activation and in the progeny that they generate. We discovered recently that NSCs undergo quiescence in either G0 or G2 in the Drosophila brain, challenging the notion that all quiescent stem cells are G0 arrested. We found that G2-quiescent NSCs become activated prior to G0 NSCs. Here, we show that the cyclin-dependent kinase inhibitor Dacapo (Dap; ortholog of p57KIP2) determines whether NSCs enter G0 or G2 quiescence during embryogenesis. We demonstrate that the dorsal patterning factor, Muscle segment homeobox (Msh; ortholog of MSX1/2/3) binds directly to the Dap locus and induces Dap expression in dorsal NSCs, resulting in G0 arrest, while more ventral NSCs undergo G2 quiescence. Our results reveal region-specific regulation of stem cell quiescence.