The balance between proliferation and differentiation in the plant shoot apical meristem is controlled by regulatory loops involving the phytohormone cytokinin and stem cell identity genes. Concurrently, cellular differentiation in the developing shoot is coordinated with the environmental and developmental status of plastids within those cells. Here we employ an Arabidopsis thaliana mutant exhibiting constitutive plastid osmotic stress to investigate the molecular and genetic pathways connecting plastid status with cell fate decisions at the shoot apex. msl2 msl3 mutants exhibit dramatically enlarged and deformed plastids in the shoot apical meristem, and develop a mass of callus tissue at the shoot apex. Callus production in this mutant is characterized by increased cytokinin levels, the down-regulation of cytokinin signaling inhibitors ARR7 and ARR15, and induction of the stem cell identity gene WUSCHEL and is reduced in the absence of the cytokinin receptor AHK2. Furthermore, plastid stress-induced apical callus requires elevated plastidic ROS, ABA biosynthesis, and retrograde signaling proteins GUN1 and ABI4. These results establish a functional link between the cytokinin/WUS pathway and retrograde signaling in controlling cell fate at the shoot apex.