Src non-receptor kinases have been implicated in events late in tumor progression. Here, we study the role of Src kinases in the Drosophila intestinal stem cell (ISC) lineage, during tissue homeostasis and tumor onset. The adult Drosophila intestine contains only two progenitor cell types, division-capable ISCs and their daughters, postmitotic enteroblasts (EBs). We found that Drosophila Src42a and Src64b were required for optimal regenerative ISC division. Conversely, activation of Src42a, Src64b or another non-receptor kinase, Ack, promoted division of quiescent ISCs by coordinately stimulating G1/S and G2/M cell cycle phase progression. Prolonged Src kinase activation caused tissue overgrowth owing to cytokine receptor-independent Stat92E activation. This was not due to increased symmetric division of ISCs, but involved accumulation of weakly specified Notch(+) but division-capable EB-like cells. Src activation triggered expression of a mitogenic module consisting of String/Cdc25 and Cyclin E that was sufficient to elicit division not only of ISCs but also of EBs. A small pool of similarly division-capable transit-amplifying Notch(+) EBs was also identified in the wild type. Expansion of intermediate cell types that do not robustly manifest their transit-amplifying potential in the wild type may also contribute to regenerative growth and tumor development in other tissues in other organisms.