Stem cells often possess immature mitochondria with few inner membrane invaginations, which increase as stem cells differentiate. Despite this being a conserved feature across many stem cell types in numerous organisms, how and why mitochondria undergo such remodelling during stem cell differentiation has remained unclear. Here, using Drosophila germline stem cells (GSCs), we show that Complex V drives mitochondrial remodelling during the early stages of GSC differentiation, prior to terminal differentiation. This endows germline mitochondria with the capacity to generate large amounts of ATP required for later egg growth and development. Interestingly, impairing mitochondrial remodelling prior to terminal differentiation results in endoplasmic reticulum (ER) lipid bilayer stress, Protein kinase R-like ER kinase (PERK)-mediated activation of the Integrated Stress Response (ISR) and germ cell death. Taken together, our data suggest that mitochondrial remodelling is an essential and tightly integrated aspect of stem cell differentiation. This work sheds light on the potential impact of mitochondrial dysfunction on stem and germ cell function, highlighting ER lipid bilayer stress as a potential major driver of phenotypes caused by mitochondrial dysfunction.