A small organizing center, the quiescent center (QC), maintains stem cells in the Arabidopsis root and defines the stem cell niche. The phytohormone auxin influences the position of this niche by an unknown mechanism. Here, we identify the PLETHORA1 (PLT1) and PLT2 genes encoding AP2 class putative transcription factors, which are essential for QC specification and stem cell activity. The PLT genes are transcribed in response to auxin accumulation and are dependent on auxin response transcription factors. Distal PLT transcript accumulation creates an overlap with the radial expression domains of SHORT-ROOT and SCARECROW, providing positional information for the stem cell niche. Furthermore, the PLT genes are activated in the basal embryo region that gives rise to hypocotyl, root, and root stem cells and, when ectopically expressed, transform apical regions to these identities. Thus, the PLT genes are key effectors for establishment of the stem cell niche during embryonic pattern formation.