Several signaling pathways control blood cell (hemocyte) development in the Drosophila lymph gland. Mechanisms that modulate and integrate these signals are poorly understood. Here we report that mutation in a conserved endocytic protein Asrij affects signal transmission and causes aberrant lymph gland hematopoiesis. Mammalian Asrij (Ociad1) is expressed in stem cells of the blood vascular system and is implicated in several cancers. We found that Drosophila Asrij is a pan-hemocyte marker and localizes to a subset of endocytic vesicles. Loss of asrij causes hyperproliferation of lymph gland lobes coupled with increased hemocyte differentiation, thereby depleting the pool of quiescent hemocyte precursors. This co-relates with fewer Col+ cells in the hematopoietic stem cell niche of asrij mutants. Asrij null mutants also show excess specification of crystal cells that express the RUNX factor Lozenge (Lz), a target of Notch signaling. Asrij mutant lymph glands show increased N in sorting endosomes suggesting aberrant trafficking. In vitro assays also show impaired traffic of fluorescent probes in asrij null hemocytes. Taken together our data suggest a role for Asrij in causing increased Notch signaling thereby affecting hemocyte differentiation. Thus, conserved endocytic functions may control blood cell progenitor quiescence and differentiation.