The Polycomb group (PcG) genes encode conserved proteins that are required for establishing a repressive state of Hox gene expression. Emerging evidence implicates these proteins in stem cell maintenance and differentiation. Here, we examine the roles of PcG genes in Drosophila optic lobe development. Using loss-of-function mutant assays, we show that PcG genes have a dual requirement for neuroepithelial stem cell proliferation and differentiation. The Hox gene Abdominal-B is derepressed in PcG mutant cells, and ectopic Abd-B expression inhibits neuroepithelial cell proliferation. Also associated with the functional loss of PcG genes, JAK/STAT is ectopically activated, but Notch is inactivated; these conflicting signaling activities may account for the defects in neuroepithelial cell proliferation and differentiation. Our results demonstrate a temporal requirement for PcG genes in the proliferation and differentiation of neuroepithelial stem cells in Drosophila brain development.