The Drosophila lymph gland has been characterized as the definitive hematopoietic organ in which a population of mulitpotent stem-like progenitors, defined by expression of the interleukin JAK-STAT receptor gene domeless (dome) and located within the Medullary Zone (MZ), is maintained both by a niche and an equilibrium signal emanating from nearby differentiated cells. However, it is not clear what the specific contribution of these progenitors is to the lymph gland during normal development or under immune challenge conditions. Here, we demonstrate a requirement for the TEAD family transcription factor Scalloped in the maintenance and proliferation of hematopoietic progenitors. We have identified a novel population of domeless negative progenitors in the early lymph gland that express Scalloped and the PVR ligand PVF2. In this unique population, Scalloped maintains PVF2 expression, which is required for progenitor proliferation and achieving normal lymph gland size. STAT activity marks actively proliferating early blood progenitors, and downregulating its activity causes decreased lymph gland growth similar to loss of Scalloped and PVF2, demonstrating a requirement for PVR/STAT signaling for determining lymph gland size. We further demonstrate that maintenance of domeless-expressing progenitors in the MZ is also dependent on a PVR-mediated equilibrium signal that originates from differentiating hemocytes. Pvr activation of STAT in hemocytes mediates expression of adenosine deaminase growth factor (ADGF), which maintains the balance between progenitors and differentiating hemocytes through regulation of extracellular adenosine levels that promote progenitor differentiation. Scalloped loss of function clones lack expression of PVR and depletion of Scalloped in differentiating hemocytes induces complete loss of progenitors, and this phenotype is rescued by overexpression of STAT and ADGF. Therefore, Scalloped function is required in hemocytes to maintain expression of PVR and maintain progenitors of the MZ. Additionally, the immune response to wasp parasitization is dependent on the presence of the pool of MZ progenitors to generate a cellular response to infestation. Scalloped mutants do not mount a lamellocyte mediated immune response to wasp parasitization, demonstrating that Scalloped is also required for the cellular response to infection. Scalloped is required to maintain the hematopoietic niche specifically during immune challenge conditions. These findings expand our mechanistic insight into the signals required to maintain hematopoietic progenitors and the underlying genetic requirements for niche competence essential for mediating the cellular immune response to infection.