Whether human cancer follows a hierarchical or stochastic model of differentiation is controversial. Furthermore, the factors that regulate cancer stem-like cell (CSC) differentiation potential are largely unknown. We used a novel microfluidic single-cell culture method to directly observe the differentiation capacity of four heterogeneous ovarian cancer cell populations defined by the expression of the CSC markers aldehyde dehydrogenase (ALDH) and CD133. We evaluated 3,692 progeny from 2,833 cells. We found that only ALDH⁺CD133⁺ cells could generate all four ALDH^+/−CD133^+/− cell populations and identified a clear branched differentiation hierarchy. We also observed a single putative stochastic event. Within the hierarchy of cells, bone morphologenetic protein 2 (BMP2) is preferentially expressed in ALDH⁻CD133⁻ cells. BMP2 promotes ALDH⁺CD133⁺ cell expansion while suppressing the proliferation of ALDH⁻CD133⁻ cells. As such, BMP2 suppressed bulk cancer cell growth in vitro but increased tumor initiation rates, tumor growth, and chemotherapy resistance in vivo whereas BMP2 knockdown reduced CSC numbers, in vivo growth, and chemoresistance. These data suggest a hierarchical differentiation pattern in which BMP2 acts as a feedback mechanism promoting ovarian CSC expansion and suppressing progenitor proliferation. These results explain why BMP2 suppresses growth in vitro and promotes growth in vivo. Together, our results support BMP2 as a therapeutic target in ovarian cancer.